Lumentum's (LITE) pricing power continues to be a "standout" after it posted fiscal Q3 gross margins over 350 basis points above expectations, Morgan Stanley said in a Wednesday note.
The firm can leverage its position in the market for electro-absorption modulated lasers and pump lasers, specifically by raising prices during tight conditions, the note said.
"With demand for product continuing to grow, that sets the stock up to maintain bull case valuation in the near term, as pricing power is unlikely to ease," the report said.
"This is even before we have really seen the ramp of optical circuit switching (OCS) and co-packaged optics (CPO), which don't become more material until later in the year," it added.
Still, the note said some "digestion" would be healthy following the recent strong performance of its shares.
Morgan Stanley raised its price target to $900 from $710 while keeping its equal-weight rating.
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