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Is There An Opportunity With Lumentum Holdings Inc.’s (NASDAQ:LITE) 46% Undervaluation?

Using the most recent financial data, we’ll take a look at whether the stock is fairly priced by taking the foreast future cash flows of the company and discounting them back to today’s value.

The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’

We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: (“Est”

After calculating the present value of future cash flows in the intial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage.

Terminal Value (TV)= FCF2019 × (1 + g) ÷ (r – g) = US$835m× (1 + 2.7%) ÷ 9.8%– 2.7%) = US$12b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$12b÷ ( 1 + 9.8%)10= US$4.7b

Given that we are looking at Lumentum Holdings as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.

We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.If you spot an error that warrants correction, please contact the editor at

Lumentum Showcases Broad Portfolio Of Innovative Solutions At ECOC 2019

('Lumentum'), an industry-leading provider of optical networking solutions that enable cost-effective and flexible network capacity growth, today announced it will present its full-spectrum of optical communications solutions during the European Conference on Optical Communications (ECOC) at the RDS Venue in Dublin, Ireland from September 23-25, 2019.

Leveraging its market-leading highly integrated indium phosphide (InP) photonic integrated circuit (PIC) technology, Lumentum provides scalable and flexible coherent optical network solutions that enable higher-speeds for next-generation mobile backhaul, data center interconnect (DCI), metro/regional, and long-haul networks.

An industry-leader in telecom pump lasers, Lumentum will display its latest advanced 980 nm single-mode pump lasers that enable increased output power, density, and efficiency and reduced footprint and power consumption in optical amplification applications.

The live demo will showcase the use of the ONOS SDN controller for disaggregated transport networks, covering the provisioning of data connectivity services and demonstrating advanced automatic failure recovery and resiliency, at both the data and control plane level.

These speaking engagements address trends in the industry including the rapid growth of next-generation ROADM networks and advances in InP-based source lasers for high-speed fiber optic applications.