Coherent's Robust Margin Expansion: Is This Key to Its Growth Engine?

Coherent Corp. COHR registered a 249-basis-point (bps) year-over-year growth in gross margin during the first quarter of fiscal 2026, with operating margin witnessing a whopping 1,081 bps expansion. This lofty improvement highlights the company’s true potential at maximizing value from its business model, which revolves around AI infrastructure.

A high demand experienced by COHR, combined with its prudent expense optimization measures and strategic divestiture, drove its margins. During the aforementioned quarters, its top line registered 17.3% year-over-year growth, primarily driven by high demand for its product portfolio. Coherent noted the rapid adoption of its 1.6T transceiver, which is expected to grow further in 2026, as remarked by its CEO.

Higher yields have been witnessed in 6-inch Indium Phosphide (InP) compared with the 3-inch ones. Banking on the rampant growth of AI datacenters, management decided to start 6-inch InP production in Jarfalla, Sweden. On the Optical Circuit Switch front, management has identified its addressable market to have a value of over $2 billion, providing a significant growth opportunity.

COHR witnessed a 2.7% year-over-year rise in its total cost and expense during the first quarter of fiscal 2026, which we believe is not significant given the soaring demand. Furthermore, the recent divestiture of the Aerospace & Defense business was accretive to gross margin and EPS, aiding profitability. All in all, Coherent is scaling revenues while maintaining a leaner and profitable structure.

COHR’s Price Performance, Valuation & Estimates

Coherent stock has surged 84.9% in a year compared with the industry’s 17% growth. Its industry peer Adeia Inc. ADEA has gained 33.9%, while Skillsoft SKIL has lost 69.5% during the same time frame.

One-Year Share Price Performance

From a valuation perspective, COHR trades at a forward 12-month price-to-sales ratio of 3.78X, higher than Adeia’s and Skillsoft’s 4.72X and 0.15X, respectively.

Price/Sales - F12M

Coherent has a Value Score of D. Adeia and Skillsoft carry a Value Score of C and A, respectively.

The Zacks Consensus Estimate for COHR’s earnings for fiscal 2026 and 2027 has increased 1.6% and 1.1%, 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