Should Lumentum Stock Be in Your Portfolio Pre-Q4 Earnings?

Lumentum LITE is set to report its fourth-quarter fiscal 2026 results on Aug. 11.

For the to-be-reported quarter, Lumentum expects revenues between $960 million and $1.01 billion. LITE expects non-GAAP earnings in the $2.85-$3.05 per share range.

The Zacks Consensus Estimate for revenues is pegged at $988.56 million, indicating an increase of 105.65% from the year-ago quarter’s reported figure. The consensus mark for earnings is pegged at $2.99 per share, up by 3 cents over the past 30 days. Lumentum reported earnings of 88 cents in the year-ago quarter.

Consensus Estimate Trend

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LITE’s earnings have surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 9.59%. 

Let us see how things have shaped up for the upcoming announcement.

Key Factors to Note Ahead of LITE’s Q4 Results

Lumentum’s fourth-quarter fiscal 2026 results are expected to have benefited from continued robust demand across its cloud and AI portfolio, supported by strength in both components and systems. More than half of the anticipated sequential revenue growth (21.3% at current guidance) is expected to have come from components, with the balance driven mainly by high-speed transceivers and additional Optical Circuit Switch (OCS) contributions.

Demand for EML laser chips and scale-across products, including pump lasers and narrow-linewidth laser assemblies, is likely to have remained particularly strong. In the third quarter of fiscal 2026, narrow-linewidth laser shipments had increased more than 120% year over year, and pump laser shipments grew 80%, with these products effectively sold out for the foreseeable future.

Another important fiscal fourth-quarter catalyst is likely to have been the ramp of 1.6T transceivers. Lumentum entered the quarter expecting to increase shipments of 1.6T products, including initial integration of internally sourced CW lasers, while continued yield improvements and lower scrap rates were expected to support transceiver profitability. The transition from 800G to 1.6T also represents a favorable content and pricing dynamic for the company. LITE noted that 200G EMLs used for 1.6T applications carry roughly twice the ASP of the 100G EMLs predominantly used in 800G transceivers.

Meanwhile, favorable product mix, pricing discipline, manufacturing utilization and operating leverage should have supported further earnings expansion. These factors had already lifted fiscal third-quarter non-GAAP gross margin by 540 basis points (bps) sequentially to 47.9% and operating margin by 700 bps to 32.2%.

Despite the favorable demand backdrop, supply constraints could have limited Lumentum’s ability to fully capitalize on customer demand in the fourth quarter of fiscal 2026. Management indicated that the EML supply-demand gap remained above 30%, while pump-laser constraints were even more pronounced, forcing the company to make allocation decisions among customers. OCS growth has similarly been gated by supply-chain tightness amid a substantial increase in requested output.

LITE Shares Outperform Sector 

Lumentum shares have jumped a whopping 127.4% in the year-to-date period (YTD), outperforming the broader Zacks Computer and Technology sector’s appreciation of 16.9%. The company has outperformed peers like Coherent COHR and Ciena CIEN but lagged Marvell Technology MRVL YTD. Shares of Coherent, Ciena and Marvell Technology have returned 81.1%, 72.7% and 147.6%, respectively, over the same time frame.

LITE Stock’s Price Performance

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Lumentum and Coherent are competitors in high-speed optical modules and transceivers used in data centers and optical links for AI infrastructures. Ciena is a leading provider of optical networking equipment, software and services. Marvell Technology is a competitor in optical networking for AI and data center applications.

The LITE stock is not so cheap, as suggested by the Value Score of F. In terms of the forward 12-month price-to-sales (P/S), LITE is trading at 10.93X, higher than the broader sector and peers. While the sector is trading at 6.54X, Ciena and Coherent trade at 7.63X, and 6.42X, respectively. However, LITE is trading at a discount compared with Marvell Technologies, shares of which trade at 13X.

LITE Stock is Trading at a Premium

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LITE's Prospects Ride on Strong AI Demand

Lumentum appears well positioned to benefit from a multiyear expansion in optical content as AI infrastructure increasingly shifts from copper toward optics. Beyond its current EML and transceiver strength, the company sees four major growth vectors — OCS, optical scale-out, optical scale-up and transceivers — with several still making only modest contributions to revenues. Management expects OCS and scale-out contributions to become more meaningful ahead, while optical scale-up could see major inflection points beginning in 2027.

The company has also highlighted the transition toward 1.6T and eventually 3.2T connectivity, which should increase optical content requirements. Lumentum’s strong position in differentiated high-performance lasers, where reliability, performance and customer manufacturing yields create meaningful barriers to entry, could enable the company to capture a sizable share of this expansion.

Scale-up connectivity and CPO/NPO represent particularly compelling longer-term opportunities. Lumentum expects optical scale-up to significantly increase optical intensity as connectivity moves inside and between AI racks, potentially creating an opportunity substantially larger than scale-out. According to LITE, optical intensity could increase by at least three times when scale-up takes hold, while CPO demand remained strong and CW-laser requirements continued to rise. OCS offers another substantial runway as customer engagements and use cases broaden, including higher and lower-port-count configurations and potential in-rack applications. 

Longer term, Lumentum also intends to broaden its component portfolio beyond lasers into areas such as photonic ICs, photodiodes, laser drivers and potentially TIAs, expanding the company's addressable content within next-generation optical systems.

Conclusion

Lumentum appears to have entered the fiscal fourth quarter with strong momentum, backed by surging AI-related optical demand, the 1.6T transceiver ramp, tight EML and scale-across supply, improving mix and substantial operating leverage. More importantly, many of its potentially largest opportunities — including OCS, scale-out CPO and especially optical scale-up — remain at relatively early stages of adoption. Lumentum's differentiated laser portfolio, expanding optical footprint and exposure to rising AI connectivity requirements provide a favorable foundation for sustained revenue and earnings growth over the longer term.

Lumentum currently has a Zacks Rank #2 (Buy), which implies that investors should buy the stock ahead of fiscal fourth-quarter earnings. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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