Jefferies Sets Buy Rating, $11.25 Target On Oclaro

Jefferies sees Oclaro, Inc. OCLR with the potential of providing about 30 percent by setting a price target of $11.25 with a Buy rating. The comments come about 10 days after the company priced its 15.0 million public offerings at $8.35 a share.

Analyst James Kisner believes the company stands to gain from at least three factors in the next couple of years. Those multiple secular drivers are:

• Verizon Communications VZ's 100G deployment in the Metro in the United States
• Network buildouts in China
• Strong uptick in data centers at both "Web 2.0/hyperscale companies"

The brokerage complimented Oclaro for transforming its business including divesting of a number of units, debt payment, and the focus on product areas so that it could differentiate itself. This resulted in impressive turnaround to record tripling of gross margin while operating margin doubled compared to operating losses suffered previously.

In a note, Jefferies said, "Verizon 100G Metro Ramping. VZ recently began deployments of 100G optical gear in Metro networks. With VZ ramping late in 2016, we expect VZ's spend will be up significantly Y/Y in 2017, benefiting OCLR, which sells components into the optical OEMs supplying VZ."

The brokerage sees Oclaro gaining from China's continuous buildouts of networks and expects the region to offer big opportunities in broadband expansion coverage apart from 4.5/5 wireless.

Kisner expects Oclaro to take part in client module market, which would be viewed as a compelling opportunity, where revenue outlook has been predicted to reach $4 billion in 2020 from $1 billion in 2015.