After Marvell announced acquisition news, Lumentum (LITE) shares plunged more than 18.5% on Monday. But investment bank Raymond James believes this round of selling was overdone.
The firm upgraded Lumentum from "Outperform" to "Strong Buy" and raised its price target to $1,328; that target implies 94% upside from Monday's closing price. Some investors are skeptical about why Lumentum chose to accept the acquisition at this moment, and analyst Simon Leopold laid out the reasoning behind it in a Monday research note.
He wrote in the note: "Lumentum's explanation is that after the two companies merge, the overall total addressable market (TAM) will expand significantly; at the same time, the business entity remaining in the combined new company will be able to obtain the needed technology and tools to win more design orders, build differentiated products, and achieve higher margins, which is a positive for shareholders willing to bet on this strategic vision. One of the core points is that joint research and development can shorten product time to market, and we agree with this. AI hardware is iterating extremely quickly, and long-term success requires deep collaborative design. High-speed interconnect is the foundation of next-generation large-scale computing."
In early trading on Tuesday, Lumentum shares rebounded, rising 1.7%.
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