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Why NeoPhotonics Stock Rocketed Higher Today

By John Ballard – Nov 4, 2021 at 1:19PM

Key Points

  • Third-quarter revenue grew sequentially by 29% over the prior quarter.
  • Lumentum made an all-cash offer of $16 per share, which represented a 39% premium to NeoPhotonics' closing price yesterday.
  • The combined company should be better positioned to tackle a $10 billion addressable market.

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A strong earnings report and a buyout offer were extra sweet for the optoelectronics supplier.

What happened

Shares of NeoPhotonics (NPTN) were up 37% as of 12:01 p.m. EDT on Thursday.

The provider of optoelectronic products delivered strong third-quarter earnings results, with revenue up 29% quarter over quarter. But the big news that boosted the stock was the $918 million buyout proposal from Lumentum Holdings (LITE 0.96%)

A person working on networking equipment.

Image source: Getty Images.

So what

On a per-share basis, the Lumentum offer represented a 39% premium over NeoPhotonics' closing price on Nov. 3. Lumentum could be scoring a great value, since NeoPhotonics saw improving demand in the recent quarter. Management credited demand for high-speed 400G products, which accounted for most of its revenue in the quarter.  

NeoPhotonics is also seeing improving profitability, with non-GAAP operating profit reaching a positive $1.3 million compared to the prior quarter's loss of $10.3 million. 

Now what

The combination of Lumentum and NeoPhotonics is expected to unleash both companies in the fast-growing $10 billion market for optical components in the cloud and telecom network infrastructure markets. This space is seeing strong growth, given the increasing demands being placed on network capacity requirements from the growing use of the cloud, gaming, video, and other applications.

Both companies expect to generate more than $50 million in annual synergies within 24 months of the deal closing. The acquisition is also expected to be immediately accretive to the combined company's adjusted earnings per share.

John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Lumentum Holdings. The Motley Fool has a disclosure policy.

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