Coherent's (COHR) gross margin pickup is falling short of investor expectations and is likely to cause some digestion in the near term, Morgan Stanley analysts said in a Thursday note.

Analysts said that Coherent's quarterly earnings report and call showed improvements in sequential revenue as capacity scales. Morgan Stanley said it does not expect the company to face constraints as it scales other businesses.

Analysts said, however, that they have not yet seen material step-ups in the company's gross margins, even as its telecommunications portfolio reprices.

Morgan Stanley raised its 2026 adjusted earnings estimate for the company to $5.48 from $5.42. Analysts polled by FactSet expect $5.44.

Analysts retained an equalweight rating on the stock and raised its price target to $330 from $290.

Price: 325.93, Change: -18.74, Percent Change: -5.44