Infinera Shares Lower As Citi Downgrades To Sell

Infinera Corp. INFN earnings have provided a positive surprise between 5.0 percent and 29.4 percent in the last four quarters. Its most recent quarter's EPS topped by $0.03, or 16.7 percent. However, that did not deter Citi from downgrading the stock from Neutral to Sell and slashing the price objective from $10 to $8, which subsequently sent the stock lower on Thursday.

Analysts Stanley Kovler and Brendan Finn reached their conclusion based on a 22x profit earnings ratio applied to their EPS estimate of $0.36 for the fiscal year 2017, which was lower than the Street's consensus of $0.42. The analysts cited the recent volatility in the stock and termed it as high risk.

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In a research note to clients, the lead analyst said, "Shares are down 50 percent YTD, yet additional margin pressure from its aggressive pursuit of new Metro deals and R&D spend means yet another leg down in earnings, with limited visibility until 2H'17. Our $8 PT is equivalent to discounting back a 14x PE on $0.64 FY18 EPS which we believe reflects INFN's recent PE and more 'normalized' margins."

Another factor that worried the analysts was the lack of presence of Infinera in China or inside data centers. The brokerage believes the company is focused on developed markets and pointed out that growth is coming from China and data centers only.

Following the news, the stock shed $0.35, or 3.95 percent, to $8.52. At time of publication, the stock had modestly rebounded, seen trading at $8.62, down 2.76 percent.

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