COHR Appears Expensive to Its Industry: Is AI Premium Warranted?

Core Insights - Coherent Corp. (COHR) is trading at a forward 12-month price-to-earnings ratio of 37.86X, significantly higher than the industry average of 22.26X, indicating a premium valuation despite strong operational performance [1][7] - In Q2 of fiscal 2026, COHR's non-GAAP EPS increased by 35.8% year-over-year to $1.29, outpacing the 17.5% revenue growth, showcasing substantial operating leverage [1][7] - The company has a book-to-bill ratio exceeding 4X in its data center segment, reflecting strong demand and visibility for future growth, particularly linked to AI infrastructure spending [3][7] Valuation Metrics - COHR's forward 12-month price-to-sales ratio stands at 5.83X, well above the industry's 2.57X, attributed to over 70% of revenue coming from the Datacenter & Communications segment [3] - The company's total debt to total capital ratio improved to 27.4% in Q2 of fiscal 2026, down from 41.1% in the same quarter last year, indicating effective balance sheet management [4] - Despite high valuation multiples, the strong margins and backlog suggest that the AI premium is justified by operational efficiency rather than speculation [5] Competitive Positioning - Compared to major competitors, Coherent is trading at a lower valuation; IPG Photonics is at 70.02X and Lumentum at 56.33X forward 12-month price-to-earnings [6] - Over the past six months, COHR's stock has surged by 174.2%, outperforming the industry which saw a 2.2% decline, although it lagged behind Lumentum's 441% increase [9] Earnings Estimates - The Zacks Consensus Estimate for COHR's earnings for fiscal 2026 and 2027 has risen by 5.5% and 13.1%, respectively, over the past 60 days [12] - COHR currently holds a Zacks Rank 2 (Buy), indicating positive market sentiment towards the stock [12]