Is Coherent's Deleveraging Plan Clearing the Runway for Growth?

Coherent Corp. COHR has reduced its long-term debt, which ballooned to $4.2 billion in 2023 following the merger of II-VI and legacy Coherent. It marks a pivot to a growth-oriented capital allocator from a survival story. The company ensured that its deleveraging campaign altered its risk profile, and it was made possible by the active streamlining of its portfolio.

In late 2025, Coherent announced the sale of its aerospace and defense business for a whopping $400 million. The central objective was to utilize the proceeds to reduce debt. In addition to this divestiture, in the last month, the company sold its product division that manufactures and sells tools for materials processing to Bystronic. These sell-offs provide a major cushion for the company by reducing lower-margin non-core assets while lowering debt.

During the second quarter of fiscal 2026 earnings call, CFO Sherri Luther explicitly cited that the company maintained a debt leverage ratio of 1.7X, down from the year-ago quarter’s 2.3X. Coherent’s shift to a learner balance sheet was supported by a cash chest of $899 million as of the end of December 2025. The company witnessed a consistent decline in long-term debt, which stood at $3.2 billion.

Management looks forward to the expansion in Coherent’s capacity, which demands higher CapEx. Hence, the focus has shifted from just servicing debt to strengthening the balance sheet, which is vital to fund aggressively. The company is scaling its Indium Phosphide (InP) production, aiming to boost 1.6T transceiver production to meet a book-to-bill ratio that surpassed 4X in the datacenter segment.

A strategic divorce from the legacy business and interest expense cut-down unlocks the financial agility to surf on the AI infrastructure wave with ease, positioning the company for long-term growth.

COHR’s Price Performance, Valuation & Estimates

Over the past year, Coherent’s stock has skyrocketed 281.5%, beating the 19.6% rally of its industry. COHR has exceeded Agora’s API 18.6% dip and ESCO Technologies’ ESE 69.6% upsurge in the same period.

1-Year Share Price Performance

From a valuation standpoint, Coherent trades at a 12-month forward price-to-earnings ratio of 38.41, exceeding the industry’s 29.75. The stock appears expensive compared with Agora and ESCO Technologies’ 27.43 and 32.23, respectively.

P/E F12M

Coherent Corp, Agora and ESCO Technologies have a Value Score of D.

The Zacks Consensus Estimate for COHR’s earnings for fiscal 2026 and 2027 has increased 5.5% and 13.1%, respectively, over the past 60 days.

COHR currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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