Finisar Setting Up Strong Heading Into Earnings Release, MKM Says

The set up for Finisar Corporation FNSR is favorable heading into its fourth quarter earnings report on June 16 on strong 100G products, according to a note from MKM Partners, which sees a potential trading opportunity.

MKM says 100+G products accounts for approximately 20 percent of Finisar's revenues in its third quarter, and the percentage likely increased in the fourth quarter.

"Strong product drivers for the company are 100G Datacom (QSFP28, CFP2, CFP4) and 100+G Metro Telecom and DCI (WSS/ROADM, CFP2-ACO). Above corporate average growth in these products should help offset annual prices declines in the 4QFY16 GMs," analyst Michael Genovese wrote in a note.

Genovese expects the stock could react well if the first quarter gross margin guidance is slightly above consensus, and the revenue outlook is in line.

"We are taking the view that strong demand for 100+G products in the Datacom and Telecom segments could help drive slight upside to consensus GMs," the analyst said.

Genovese said Finisar should be able to report fourth quarter revenues "in line to slightly better than our at-consensus $318mn (-1% y/y, +3% q/q) estimate."

Datacom is expected to make up 70 percent of the company's sales, while Telecom is projected to account for the remaining 30 percent. Consensus gross margins are down 40bps sequentially to 29.9 percent, while MKM estimate is higher at 30.4 percent.

For the first quarter, Genovese forecast revenue of $324 million (+3 percent y/y), a little lower than consensus of $328 million. The analyst expects the company's revenue guidance in line with this range. The analyst project first quarter EPS at $0.27, in line with consensus.

Genovese maintained his Neutral rating and $19 price target on the stock.