Lumentum Holdings, It’s Always Darkest Before The Dawn
Institutions have been selling shares of Lumentum Holdings (NASDAQ: LITE) recently and, based on the outlook for Q3 results, we are not surprised. The net of activity over the last 12 months is been $0.23 billion in favor of the bears with all of that occurring in the 4th quarter. The 4th quarter institutional activity is a net $0.5 billion in favor of the bulls, more than offsetting buying seen in the first half of the year, and equal to about 6.8% of the company’s market cap with shares trading at $86.50. The institutional ownership remains high, however, at 89% of the company, but this is a telling indication of the near-term direction for share prices.
Supply Chain Hurdles Worsen For Lumentum
Shares of Lumentum popped late last year on what was a bright and brightening outlook for the business. The company operates in two segments, Optical Communications and Commercial Lasers, and both are seeing high and rising demand. That pop began to lose steam, however, after a long-awaited acquisition deal was finally agreed upon and now price action is falling further. Nothing has changed about the fundamental picture for the stock, including supply chain issues, and that is the problem. The Q2 results are OK but mixed compared to consensus estimates but they could have been even better and there’s more. The guidance for Q3 was slashed by more than 1500 basis points and there is really no end to the hurdles in sight despite an optimistic outlook from the CEO.
"Industry-wide supply shortages have worsened with the recent surge in COVID-19 and are negatively impacting our third quarter revenue guidance by more than $65 million.” said Alan Lowe, President and CEO. “These shortages come at a time when customer demand is accelerating for our differentiated communications products, which are essential to multi-year expansions in next-generation optical network capacity that are just beginning to be deployed. We continue to work to alleviate supply constraints, and expect fourth quarter revenue to be up from that of the third quarter and supply shortages to improve by the second half of this calendar year."
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Lumentum Holdings Q2 Results And Outlook Sap Sentiment
Lumentum Holdings Q2 results are OK in light of the global supply chain issues plaguing the system but the market had priced in so much more. The $446.7 million in revenue is not not only down 6.7% from last year when, really, revenue should be growing, but it also missed the consensus by 44 basis points. The miss itself isn’t all that bad but the market was expecting outperformance relative to estimates.
The good news is that margin came in ahead of expectations at 51% for adjusted gross margin and 31.7% for adjusted operating margin putting EPS at $1.60 or $0.02 ahead of consensus. The bad news is in the guidance. The company is not only expecting a severe disruption to revenue but the margin is expected to shrink by 570 basis points as well.
The Technical Outlook: Lumentum Falls Hard, May Fall Harder
Shares of Lumentum are down almost 15% in the wake of the guidance update and may fall further. The move is amplified by a high 10% short-interest that may have grown since the first of the month. In our view, support is possible at the $83, if it doesn’t hold up then a move to $80 and $77 come into play.
About Lumentum
Lumentum Holdings, Inc engages in the provision of optical and photonic products. It operates through the Optical Communications (OpComms) and Commercial Lasers segments. The OpComms segment includes a range of components, modules, and subsystems to support customers including carrier networks of access (local), metro (intracity), long-haul (city-to-city and worldwide), and submarine (undersea) applications.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Lumentum (LITE) | $85.08 | +1.8% | N/A | -10.28 | Hold | $75.38 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
