Coherent Corp (COHR) saw its stock price plummet 19.13% in pre-market trading on Thursday, following the company's fourth-quarter earnings report and announcement of a significant business divestiture. Despite beating earnings expectations for Q4, investors were spooked by weak guidance for the upcoming quarter and concerns about the sale of the company's Aerospace and Defense (A&D) business.

The photonics technology leader reported Q4 adjusted earnings per share of $1.00, surpassing the analyst consensus estimate of $0.91. Revenue for the quarter came in at $1.53 billion, also beating expectations of $1.51 billion. However, the company's outlook for the first quarter of fiscal 2026 fell short of market expectations, projecting revenue between $1.46 billion and $1.60 billion, with the midpoint below analysts' forecast of $1.54 billion.

Adding to investor concerns, Coherent announced an agreement to sell its A&D business to private equity firm Advent for $400 million. While the company plans to use the proceeds to reduce debt, some market participants view the divestiture as potentially sacrificing a lucrative division. The A&D business had been generating approximately $50 million in quarterly revenue.

Jim Anderson, CEO of Coherent, stated, "We made the decision to sell our A&D business because it was not aligned with our long-term strategic focus areas and it did not support our long-term financial targets." However, this strategic shift appears to have unsettled investors in the short term.

Further compounding the negative sentiment, management provided a cautious outlook for the industrial segment due to macroeconomic uncertainties and potential tariff impacts. The company expects its industrial-related markets to be down sequentially in the coming quarter, raising concerns about near-term growth prospects.

On a more positive note, Coherent reported initial revenue from new products such as 1.6T transceivers and optical circuit switches, which could drive future growth. The company also announced a new multi-year agreement with Apple for VCSEL (Vertical-Cavity Surface-Emitting Laser) products, with revenue expected to begin in the second half of calendar year 2026.

Despite these potential long-term growth drivers, the combination of soft guidance, business divestiture, and industrial segment headwinds has prompted a significant sell-off in Coherent's stock. Investors appear to be recalibrating their expectations for the company's future performance in light of these developments.