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Today is shaping up negative for Lumentum Holdings Inc. (NASDAQ:LITE) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Surprisingly the share price has been buoyant, rising 13% to US$79.35 in the past 7 days. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following this downgrade, Lumentum Holdings' 16 analysts are forecasting 2022 revenues to be US$1.7b, approximately in line with the last 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$1.9b in 2022. It looks like the analysts have become a bit less bullish on Lumentum Holdings, given the modest decline in revenue estimates after the latest consensus updates.
Notably, the analysts have cut their price target 22% to US$90.06, suggesting concerns around Lumentum Holdings' valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Lumentum Holdings analyst has a price target of US$111 per share, while the most pessimistic values it at US$80.00. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Lumentum Holdings' revenue growth is expected to slow, with the forecast 0.8% annualised growth rate until the end of 2022 being well below the historical 15% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 4.3% annually. Factoring in the forecast slowdown in growth, it seems obvious that Lumentum Holdings is also expected to grow slower than other industry participants.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Lumentum Holdings next year. They also expect company revenue to perform worse than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of Lumentum Holdings going forwards.
There might be good reason for analyst bearishness towards Lumentum Holdings, like a weak balance sheet. For more information, you can click here to discover this and the 2 other risks we've identified.
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