Lumentum's Optical Datapoint Momentum Grows, So JPMorgan Is Upgrading The Stock

Lumentum Holdings Inc (NASDAQ: LITE) should deliver higher revenue growth later this year on positive optical datapoint momentum, JPMorgan's Rod Hall said while upgrading the stock to Overweight from Neutral.

According to Hall, Lumentum's optical component business "offers upside potential as 100G metro network buildouts accelerate in 2017."

"We expect the company to gain traction in the web 2.0 vertical as well as 100G upgrade cycle continues. We expect Lasers business to improve in FY17 as the company fixes execution issue with its key customer," Hall explained.

Hall said Lumentum's new multi-million dollar QSFP28 deal with a new large web 2.0 customer in the Datacom segment could further boost growth in FY17.

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Meanwhile, the company reported a "beat and raise quarter" on strong demand from China where Lumentum expects ROADM deployments to accelerate in 2017. Lumentum's revenue from HongKong grew 73 percent to $151 million, while U.S. revenue is expected to rebound in FY17 from Verizon Communications Inc. (NYSE: VZ) 100G metro deployments as well as new Web 2.0 customer deployments.

In addition, Lumentum said that they don't yet expect any impact from the Verizon strike, with deployments still expected in the second half of 2016.

"We believe one way that Verizon could deal with an extended strike would be to begin deployment outside of the affected NorthEast corridor of the US," Hall noted.

Hall raised his FY17 revenue estimate by 7 percent to $992 million and EPS by 9 percent to $1.35. The analyst also increased his price target to $28 from $23.50.

Shares of Lumentum closed Wednesday's regular trading session at $25.