Coherent (COHR) reported better-than-expected fiscal Q1 earnings, largely due to an improved supply of electro-absorption modulated lasers, Morgan Stanley said in a Thursday note.

The firm said the results reinforce its thesis, citing expanding indium-phosphide capacity and stronger operational efficiency. It expects datacom and networking revenue to grow significantly as more EML capacity ramps up.

Morgan Stanley said it is now expecting fiscal Q2 EPS of $1.20 on revenue of $1.61 billion, up from $1.08 on revenue of $1.57 billion previously. Fiscal 2026 EPS is now seen at $4.92 on revenue $6.58 billion, up from $4.44 and $6.34 billion, respectively.

Analysts surveyed by FactSet expect Q2 non-GAAP EPS of $1.18 on revenue of $1.61 billion, and fiscal 2026 adjusted EPS of $4.95 on revenue of $6.56 billion.

Q1 earnings and revenue gains were driven by strong datacom and telecom demand and improved EML supply, while Coherent reduced debt by $400 million and refinanced during the quarter, the report added.

The firm maintained its equal weight rating on the stock and raised its price target to $150 from $120.

Coherent shares were nearly 16% higher in recent trading.

Price: 155.91, Change: +21.28, Percent Change: +15.81