Coherent Corp (COHR) shares plummeted 21.57% in pre-market trading on Thursday following the company's fourth-quarter earnings report and announcement of a significant business divestiture. Despite beating earnings expectations for Q4, investors were spooked by weak guidance for the upcoming quarter and concerns about the sale of the company's Aerospace and Defense (A&D) business.
The photonics technology leader reported Q4 adjusted earnings per share of $1.00, surpassing the analyst consensus estimate of $0.91. Revenue for the quarter came in at $1.53 billion, also beating expectations of $1.51 billion. However, the company's outlook for the first quarter of fiscal 2026 fell short of market expectations, projecting revenue between $1.46 billion and $1.60 billion, with the midpoint below analysts' forecast of $1.54 billion.
Adding to investor concerns, Coherent announced an agreement to sell its A&D business to private equity firm Advent for $400 million. While the company plans to use the proceeds to reduce debt, some market participants view the divestiture as potentially sacrificing a lucrative division. The A&D business had been generating approximately $50 million in quarterly revenue.
The combination of soft guidance, business divestiture, and industrial segment headwinds has prompted a significant sell-off in Coherent's stock. Analysts have responded by adjusting their price targets, with Rosenblatt lowering its target to $135 from $150, while maintaining a Buy rating. BofA Securities downgraded the stock to Neutral, reflecting the increased uncertainty surrounding the company's near-term prospects.
Despite the negative reaction, Coherent reported some potential long-term growth drivers, including initial revenue from new products such as 1.6T transceivers and optical circuit switches. The company also announced a new multi-year agreement with Apple for VCSEL products, with revenue expected to begin in the second half of calendar year 2026. These developments may offer some hope for the company's future performance, but for now, investors appear to be recalibrating their expectations in light of the current challenges.