Oclaro Delivers A Clean Q1, Remains A Top Pick For Investors

Shares of Oclaro, Inc. OCLR, a provider of optical components, modules and subsyterms, gained more than 7 percent after the company reported its first quarter earnings results after Tuesday's close.

Michael Genovese of MKM Partners described the report as being "clean" with "no hint of worry" despite recent volatility in the stock.

In a report on Wednesday, the analyst maintained a Buy rating on the stock with an unchanged $11 price target after Oclaro delivered a modest revenue upside but a large EPS beat. On top of that, the company offered investors a"very strong" second quarter revenue and margin guidance.

Genovese has been positive on the stock since at least September when he maintained a Buy rating and $10 price target.

Genovese expanded on Oclaro's guidance and noted that it implies the company is tracking to nearly 60 percent year-over-year revenue growth in the first half of fiscal 2017, which bodes well for management's prior outlook of 30 percent sales growth for the full fiscal year.

The analyst also highlighted Oclaro's sales to China which was represented 43 percent of total revenue and was consistent with the prior quarter. However, Genovese noted that Oclaro's exposure to China is "strong but not stronger" than Datacom, DCI and Metro. Nevertheless, the company expects 30 percent coherent port growth in China in 2017.

Finally, Genovese argued that Oclaro's top-line opportunity is constrained more by capacity than actual demand for likely all of calendar 2017.

Bottom line, Genovese argued that Oclaro is a top pick for investors given its "opportunity to grow revenues and margins by selling 100G components into China, 100+G coherent modules into Metro and DCI applications and 100G short-reach modules to Hyper Scale Data Center operators."