Lumentum (LITE): Reassessing Valuation Following Profit Surge and U.S. Semiconductor Expansion Plans

You might be wondering if it is time to revisit Lumentum Holdings (LITE) after its recent run. The company just reported a sharp turnaround for its fiscal fourth quarter and full year, swinging back to profitability and showing a big jump in sales compared to the previous period. In addition, management released encouraging revenue guidance for the next quarter and confirmed plans to invest in expanding a U.S.-based semiconductor facility. This move is aimed at easing production bottlenecks and supporting future growth.

These developments did not go unnoticed in the market. Over the past month, Lumentum’s stock climbed over 14%, pushing its yearly return to more than 111%. Momentum has picked up significantly this year after a muted stretch, helped by the improved results and the company’s strategy to capitalize on demand for semiconductor components. Positive signals from analysts appear to have reinforced confidence, but it is the uptick in financial performance and capital investments that gave investors a reason to look twice.

Given this backdrop and the sharp rally, the big question is whether Lumentum’s growth story is already fully reflected in the share price, or if there is room for value-conscious investors to take advantage of a potential opportunity.

Most Popular Narrative: 12% Undervalued

According to community narrative, Lumentum Holdings is considered 12% undervalued based on a fair value full-year price target that factors in robust expected earnings and revenue growth as well as industry risk.

Early and accelerating customer adoption of next-generation modules (cloud modules, 200G+ EMLs), optical circuit switches, and co-packaged optics, supported by record orders and a growing hyperscaler customer base, provide clear, additive revenue streams. These are projected to materially increase total revenue and expand earnings over the next 12 to 18 months.

Want to see what’s driving this double-digit discount? The narrative is focused on surging demand and significant capacity expansion. A few bold, quantitative assumptions could be a key factor in their optimistic price target. Wondering what shocks are included, and how far the projections extend? Discover the specifics and learn what analysis is shaping this positive valuation.

Result: Fair Value of $135.59 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks remain, such as Lumentum’s dependency on a small number of major customers and ongoing supply-chain constraints, which could disrupt projected growth.

Find out about the key risks to this Lumentum Holdings narrative.

Another View: SWS DCF Model Throws Up a Surprise

While community consensus points to undervaluation using market comparisons, our DCF model offers a different angle. This approach estimates intrinsic value by projecting future cash flows, and it also suggests Lumentum is undervalued. Could both methods be correct, or is there a catch in the forecasts?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Lumentum Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Lumentum Holdings Narrative

Keep in mind that if you see things differently or want to dig into the data for yourself, you can shape your own take in just a few minutes. do it your way.

A great starting point for your Lumentum Holdings research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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