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Is Lumentum Holdings a buy?

It’s time to break down a less popular name. Here is the breakdown on $LITE, otherwise known as Lumentum Holdings.

Current Price: $79.00

52/Wk High: $112.08

52/Wk Low: $66.31

Market Cap: $6.3 Billion

Read below for the breakdown!

Lumentum Holdings ($LITE) is a leading manufacturer of optical and photonics products that enable optical networking and commercial laser solutions.

While Lumentum is smaller, their customer list is strong with names such as Apple, Alphabet, Cisco, Facebook, and Microsoft topping the list.

Given technologies recent pullback, Lumentum has seen a major correction in recent weeks, dropping 19.49% in the past three months, leaving investors to wonder if the stock is a buy.

Digging into the numbers Lumentum beat Q2 2021 expectations with an EPS of $1.99, much better than the expected $1.90. On a year over year basis, EPS improved 30.07%.

Revenues improved as well, totaling $478.8 million for the quarter and much better than the Q2 2020 revenues level of $457.8 million.

As for gross margin, Lumentum reported a gross margin of 48%, representing a strong jump over the Q2 2020 gross margins level of 41.3%.

As for expenses, operating expenses remained flat at $114.3 million, the exact same as Lumentum’s Q2 2020 operating expenses level of $114.3 million.

Operating income on the other hand improved, reaching $115.3 million for the quarter, much better than the Q2 2020 level of $74.8 million.

Breaking things down by segment, Optical Communications revenues increased to $449.1 million from $409.4 million, while Telecom & Datacom revenues totaled $286.2 million from the 2020 level of $266.3 million.

Furthermore, Industrial & Consumer revenues increased to $162.9 million from $143.1 million while Commercial Lasers revenues declined to $29.7 million from $48.4 million.

Shifting into the balance sheet, the numbers are solid.

Total Debt: $1.150 Billion

Total Liabilities: $1.546 Billion

Total Assets: $3.468 Billion

Cash & Short Term Inv: $1.700 Billion

On a valuation basis, Lumentum does trade at a premium.

Price to Earnings: 32.67x

Forward Price to Earnings: 11.42x

Price to Sales: 3.57x

Price to Book: 3.11x

Price to Cash Flow: 12.18x

Management has done a solid job.

Return on Equity: 10.50%

Return on Assets: 5.65%

Return on Invested Capital: 6.59%

Given the numbers the analysts are bullish with a mean price target of $116.78/share, representing a 47.82% increase.

The high price target is $138.00/share, representing a 74.68% upside, while the low price target is $97.00/share, representing a 22.78% gain.

The big money is quite involved as well, with 93.32% of Lumentum being owned by institutions. Top holders include Wellington Management Company, The Vanguard Group, and BlackRock Institutional Trust.

On a technical basis Lumentum could be presenting an opportunity. According to the six-month charts the MACD continues to move to the downside within a tight range around -1.73.

The six-month charts are also indicating an RSI of 34.29 and CCI of -176.5144, both of which are on the low end.

In short, Lumentum Holdings is a solid long term pick with expanding revenues, improving margins, and an impressive customer list.


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.

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