Coherent Shares Rose 10% in December 2019

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Coherent Inc. (Nasdaq:COHR) saw its shares rise 10.3% over the last 30 days of 2019. The swift growth was due in part to new investments in the company’s manufacturing infrastructure as well as ongoing negotiations in international trade wars. Overall, Coherent shares increased by 64% over the calendar year.

By the end of November, Coherent’s stocks were trading at $150.86 per share. By Dec. 31, the closing price was $166.35. Anders Bylund, a technology and entertainment specialist at The Motley Fool, said this spike in value could be attributed to a number of factors.

“Coherent’s recent strength is a combination of rising tides (which lifts all boats) and Coherent stealing market share from rivals like Lumentum, IPG Photonics, and II-VI,” Bylund said. According to comments from OLED specialist Universal Display and its panel-building clients, 2019 was expected to be a quiet year for OLED infrastructure investments.

In April, analyst firm Susquehanna downgraded Coherent from positive to neutral, citing “deteriorating OLED-related bookings and uncertain fiber laser prospects.” The downgrade was followed by a period of sell-offs, which led to Coherent’s share value falling by over 25% in May. But Bylund noted that by December these concerns were mitigated, and Susquehanna expects bookings to bounce back in 2020 and declines in fiber lasers sales to level off.

Industrial laser manufacturing has become a significant contributor to the global manufacturing industry in recent years, a large portion of which is overseen by companies in China. The sudden drop in Coherent’s share values and quick turnaround are both tied to the Chinese-American trade tensions and resultant tariffs that have affected the entire industrial laser sector, but Bylund isn’t viewing Coherent’s recent fluctuation as an indication for investors to evaluate the entire market.

“Coherent isn’t a perfect weather vane for the sector as a whole, given the company’s heavy reliance on the very particular OLED annealing business,” Bylund said. But the analyst also gave credit to the company’s particular focus, noting that the reliance on laser-powered annealing tools in OLED screen manufacturing allowed Universal Display to double its share prices in 2019. The same market trends brought Coherent a 56% return on its stocks in 2019, despite a drop in sales and earnings.

“It’s not so much Coherent doing anything to manipulate the market, but more of the OLED screen builders collectively deciding to invest in their manufacturing infrastructure again,” Bylund said. Despite the market impact of the trade war in 2018 and 2019, there is still a rising demand for OLED screens on consumer electronics, and Bylund noted the technology is making inroads into cars as well.

While consumer demand and international politics continue their pull on both sides of the market, Bylund believes investors and businesses alike are still looking to find a quick resolution.

“Coherent is just one of many companies that should see their top and bottom lines rise once the border-crossing tariffs go away,” said Bylund said. “Will it happen in 2020? I can’t say for sure, but the conflict is getting old and you never know what Trump might do in an election year — good or bad.”

Published: January 2020
Businessfinancial reportmarket shareOLEDsannealSusquehannaCoherentfiber lasersThe Motley FoolUniversal DisplayLaserslight speedRapidScan

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