Coherent Corp. (COHR)

The value today by multiples ($124) is below the market price ($264). The present-value lens does not apply to this company, so the contrast between methods is unavailable.

Today — expensive, no margin of safety: at $264 trades ~114.0% above its value discounted to today (~$124); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$77.

Educational / informational. Does not constitute investment advice.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBIT — resultado operativo normalizado. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The TTM (FY2026, closed June 30, 2026) uses the normalized EBIT cited from the 10-K income statement (financials.txt file from the filing cut), not the us-gaap:OperatingIncomeLoss XBRL tag, which lagged as of 2024-06-30 (730 days back, with no subsequent facts — the company stopped tagging that concept after the Coherent/II-VI merger). Coherent Corp.'s income statement does not report an explicit "operating income" subtotal: it groups interest and the gain on sale of businesses together with operating costs in a single "Total Costs, Expenses and Other Expense" block. GAAP operating income as the company reports it in its release ($897.9M FY2026 vs $289.9M FY2025) is reconstructed as Revenue − Cost of sales − R&D − Selling, general and administrative expenses − Restructuring − Asset impairment + Gain on sale of businesses (verified: cross-foots exactly against the income statement cited, lines 164-177 of financials.txt). The normalized EBIT used as this model's year-0 further excludes the US$124.1M gain on sale of businesses (sale of the aerospace/defense and Munich tooling operations, closed September 2025 and January 2026) and adds back restructuring (US$63.4M) and impairment of assets held for sale (US$64.4M), all non-recurring: FY2026 normalized EBIT = US$0.9015bn (12.66% margin). Stock-based compensation (US$186.5M, 2.6% of revenue) is expensed within cost of sales and operating expenses, with no adjustment (§3). The tax rate used for NOPAT/DCF is 19% (midpoint of the 18-20% non-GAAP guidance from the August 12, 2026 8-K), not the GAAP effective rate for FY2026 (7.2%), which was distorted by discrete tax benefits tied to the business sales and R&D credits; the real XBRL effective rate is cited in the record but does not govern the forward projection. The revenue path starts from current guidance: the August 12, 2026 8-K (Item 2.02, already incorporated into the TTM because the same quarter's 10-K was filed August 14, 2026) gives Q1 FY2027 revenue guidance of US$2.2-2.4bn (midpoint US$2.3bn) and non-GAAP EPS guidance of US$1.85-2.05 (midpoint US$1.95) — the stock's 38% drop from its 52-week high reflects that this guidance disappointed elevated market expectations following a 105% rally year-to-date, not a deterioration of the business: the Q1 revenue guidance implies sequential growth of +12.5% over Q4 FY2026 (US$2.045bn), and the guided EPS would annualize well above FY2026's. Translating that quarterly guidance into an annual path: year 1 (base) = +18% (against +22.5% real FY2026), reflecting deceleration from Datacenter & Communications' exceptional pace (+40.5% year-over-year in FY2026) offset by stabilization of the Industrial segment, whose -10.3% FY2026 decline largely reflects the sale of the aerospace/defense and Munich businesses (a base effect, not sustained organic contraction — see normalizationNotes). Maintenance capex is approximated as 47% of total capex (the real FY2026 proportion: US$521.9M of D&A over US$1,102.9M of total capex), treating the rest as explicit growth capex for expanding InP/GaAs and optical transceiver manufacturing capacity (Sherman, Texas plant; NVIDIA supply agreement). `reinvestsExcess: true`: the company does not accumulate cash or buy back stock — in fact it issued US$2.0bn of common stock in FY2026 to fund the expansion — so all excess flow is redeployed into the growth already projected; also modeling it as cash accumulation would double-count the investment. No share path (`sharesPath`): there is no net buyback to model (the company was a net equity issuer in FY2026, not a buyer).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $154 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $264, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $154 in 5 years and a required return of 4.5% annually, the maximum to pay today is $124. Against the current market price ($264), the margin of safety is -114.0% (trades above the maximum → a premium is paid) and the total return at that price would be -10.2% annually.

• Extreme entry multiple. ~59x today's normalized operating income, well above the [12x,18x] terminal exit band of the industrial archetype.
• Negative CAGR in the base case. The base-case 5-year value (US$154.22) implies a negative annual return against the market price.
• Even the favorable scenario barely reaches today's price. The Bull case (US$272.90 at 5 years) only slightly exceeds the current price, with a CAGR near zero.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ CFROIC backs up the ROIC (-50%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation depressed by the investment cycle. Operating cash flow fell to US$79.5M in FY2026 (from US$633.6M in FY2025) on a US$1.1bn working capital investment.
• Return on capital below the bar. ROIC ~6% against the 10% bar, though partly explained by the goodwill from the Coherent/II-VI merger in invested capital.
• Reinvestment runway with real evidence. Datacenter & Communications growth (+40.5%) is backed by real capex (US$1.1bn) and a signed supply agreement with NVIDIA.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Coherent has reported in two segments since July 2025 (previously three: Networking, Materials and Lasers), so the segment revenue series has only two comparable years. R&D spending, with a three-year series, shows the pace of investment in the next generation of optical products for AI infrastructure.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Datacenter & Communications. +40.5% year-over-year in FY2026, already 74% of consolidated revenue.
• Industrial. -10.3% year-over-year, largely from divestitures, not organic deterioration.
• Q1 FY2027 guidance. Revenue of US$2.2-2.4bn implies sequential growth of +12.5% over Q4 FY2026.

• Vertical integration from materials to systems. From InP/GaAs crystals and wafers to complete modules, controlling quality and the supply chain for critical single- or limited-source inputs.
• Customer concentration. Two customers each account for more than 10% of total revenue, with strong pricing negotiating power.
• Dominant exposure to a single growth driver. 74% of revenue depends on AI infrastructure expansion, which the filing itself acknowledges may not be sustainable.
• Industrial segment stabilizing. The FY2026 decline is largely from divestitures (aerospace/defense, Munich), not sustained organic contraction.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.9x
• !Interest coverage (EBIT / interest)4.8x
• –Liquidity (current ratio)no data
• ✕Cash quality (CFROIC vs ROIC)CFROIC backs -50% of ROIC
• ✕Value creation (ROIC − 10% bar)-4pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 2.1x
• !Float / working capitalConsumes cash $1.1 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 2.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Debt with covenants. ~US$3.2bn of consolidated debt with a maximum permitted net leverage of 4.25x and minimum interest coverage of 2.50x.
• Active deleveraging. Repayment of US$1.7bn of existing debt in FY2026, funded in part by the issuance of US$2.0bn of common stock.
• Available liquidity. US$664M undrawn under the revolving credit facility, plus US$1.99bn of cash and short-term investments.

• CEO with relevant track record. Jim Anderson led Lattice Semiconductor and held senior roles at AMD, Intel and Broadcom before joining in June 2024.
• Capital allocation 100% reinvestment. No common dividend or share buyback in FY2026; all cash goes toward expanding manufacturing capacity.
• Skin in the game unquantified. The DEF 14A proxy was not read in this import; insider ownership remains a declared gap.

• Not applicable: the stock is not cheap against this analysis's normalized fundamentals, even though it has fallen 38% from its 52-week high.

The 38% drop from the high reflects that Q1 FY2027 guidance disappointed elevated expectations following a 105% rally year-to-date, not a deterioration of the business — the guidance itself implies robust sequential revenue growth of +12.5% over the prior quarter. This is short-term 'motivated sellers,' not a perception-reality gap: even after the drop, the price still implies a multiple of ~59x today's normalized operating income, well above what a disciplined capital-intensive industrial framework supports as a terminal exit. No margin of safety: the price already discounts a demanding scenario.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -23%/year (-73% total): the margin of safety protects the downside. The bull (+1%/year, +3% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Cyclicality of the AI driver. The filing acknowledges that growth tied to AI infrastructure may not be sustainable.
• Pending regulatory investigation. Bureau of Industry and Security inquiry into past sales to Huawei, with no estimable loss range.
• Customer concentration. Two customers each account for more than 10% of revenue, with strong negotiating power.
• Critical materials concentrated in China. Rare earths and high-purity materials with export restrictions already in effect on yttrium and germanium.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 6% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 12% at a multiple/growth of 4.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 2% (EBIT/EV) + ROIC 6% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 150% vs our 12%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -23%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: switching costs, efficient scale, intangibles, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 150% growth, far above our 12% — heroic assumptions.