Lumentum Seeing Painful Supply Shortages, But Underlying Demand Is Strong

 

This is a Dickensian period for Lumentum (LITE), as strong demand for optical equipment from service providers and data center customers (“the best of times”) is offset by significant supply issues (“the worst of times”) that are having a definite negative impact on the company’s ability to ship to demand. At the same time, while the 3D sensing business has probably found an equilibrium for the time being, there are still robust expectations for future growth here.

I’ve written recently on my bullishness on Ciena (CIEN) and Broadcom (AVGO) given those companies’ exposure to the 400G+ upgrade cycle and ongoing investments in hyperscale data centers, and as an important supplier to equipment companies (Ciena), Lumentum should be looking at least two or three years of double-digit growth, with future 3D sensing growth a driver further down the road. Priced for a double-digit long-term annualized return on cash flow and even more undervalued on a multiples basis, I think Lumentum is worth a look from more aggressive investors.

 

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Lumentum Seeing Painful Supply Shortages, But Underlying Demand Is Strong