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Why Lumentum Stock Plummeted While Coherent Stock Skyrocketed Today

By Evan Niu, CFA - Jan 19, 2021 at 1:03PM

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Lumentum has agreed to scoop up Coherent in a $5.7 billion transaction.

What happened

Shares of Lumentum (LITE 0.00%) have plummeted while shares of Coherent (COHR 1.12%) have skyrocketed today after the companies announced  that Lumentum would acquire Coherent. Lumentum also announced preliminary results for its fiscal second quarter of 2021. As of 12:30 p.m. EST, Lumentum stock was down 11% while coherent stock was up 32%.

So what

Lumentum has agreed to purchase Lumentum for $100 per share in cash and 1.1851 shares of Lumentum stock in a $5.7 billion transaction. Both companies specialize in laser technology and photonics, and the merger is expected to produce over $150 million in annual run-rate synergies within two years of closing. The deal should be accretive to adjusted earnings per share during the first full year after closing. Lumentum will fund the cash portion of the deal with cash on hand as well as $2.1 billion in new debt.

A fiber optic cable

Image source: Getty Images.

Lumentum said that revenue in the fiscal second quarter is estimated to be approximately $478.8 million, which should result in adjusted earnings per share of $1.91 to $1.99. Consensus estimates currently  call for $479.6 million in revenue and adjusted earnings per share of $1.82.

Now what

Investors have a lot to digest here. The preliminary results were mixed compared to analyst expectations, and investors seem skeptical about such a large acquisition. The deal is expected to expand Lumentum's position in the $10 billion market for lasers and photonics beyond communications and 3D sensing applications.

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Stocks Mentioned

Lumentum Holdings Inc. Stock Quote
Lumentum Holdings Inc.
$87.08 (0.00%) $0.00
Coherent, Inc. Stock Quote
Coherent, Inc.
$266.99 (1.12%) $2.96

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