Is Coherent's R&D Excellence Crucial to Its Competitive Advantage?

Coherent Corp. COHR recorded 16.4% year-over-year growth in its top line during the June quarter, fueled by its AI-related Datacom transceiver business. Backed by research and development (R&D) prowess, COHR’s 800G transceiver, an important factor in supporting AI workload, was the primary growth driver. This innovation aligns with the rising demand for high-speed data center components.

To keep up with this rapid growth, the company introduced 1.6T transceiver products and generated its first revenues in the fourth quarter of fiscal 2025, highlighting COHR’s stronghold in its R&D.

Innovation should not only boost revenues but also improve profitability. COHR reported a non-GAAP gross margin of 38.1% in the June quarter, up 290 basis points from the year-ago quarter. This expanding profit margin suggests that Coherent’s manufacturing process and high-tech products are delivering a higher return on its R&D investment.

When compared with the industry and competitors, COHR’s R&D strength becomes more vivid. Coherent’s R&D as a percentage of sales was 10% in the June quarter, which is substantially higher than the industry’s 7.2%. However, it fell short of its competitors’ Lumentum’s LITE 18.5% and IPG Photonics’ IPGP 11.8%.

R&D as a Percentage of Sales

Despite COHR spending a lesser proportion of its revenues on R&D, it has recorded a trailing 12-month EBITDA margin of 24%, significantly higher than the industry’s 14.9%, Lumentum’s 1.5% and IPG Photonics’ 9.6%.

EBITDA Margin TTM Percentage

This benchmark comparison suggests that Coherent exhibits better operational efficiency than its industry and rivals, Lumentum and IPG Photonics, as it maintains a higher margin despite operating with a higher-cost structure.

We can conclude by saying that COHR’s R&D process is creating a cumulative advantage, wherein innovation creates robust products, generating higher margins and those margins can be reinvested in R&D, building a sustainable competitive moat.

COHR’s Price Performance, Valuation & Estimates

Over the past six months, Coherent’s stock has gained 48.2%. It has surpassed the 43.7% rally of its industry and the Zacks S&P 500 Composite’s 18.2% rise.

6-Month Price Performance

From a valuation perspective, COHR trades at a forward price-to-earnings ratio of 21.17X, lower than the industry’s 29X.

Coherent carries a Value Score of C.

The Zacks Consensus Estimate for COHR’s earnings for fiscal 2026 and 2027 has increased 2.7% and 6%, respectively, over the past 60 days.

COHR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research