UBS Highlights Two Buys, One Sell In The Optics Sector

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Analysts at Loop Capital Markets initiated coverage of the optics sector on Tuesday. Now analysts at UBS have followed suit, although not with a similar industrywide bullish stance.

The Analyst

UBS' Tejas Venkatesh initiated coverage of the following three stocks:

  • Acacia Communications, Inc. ACIA: Buy rating, $50 price target.
  • Oclaro Inc OCLR: Sell rating, $5.50 price target.
  • Lumentum Holdings Inc LITE: Buy rating, $57 price target.

Acacia: Innovation Leader

  • The Street is underestimating Acacia's revenue potential for its new CFP2-DCO product, Venkatesh said. 
  • Revenue growth in 2018 will likely be 16 percent versus the consensus estimate of 11 percent, the analyst said. 
  • Acacia is one of UBS' preferred plays on optical companies with the best non-China growth potential.
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Oclaro: 'Gap Year'

  • Oclara will likely see gross margin and growth pressures in 2018 due to technology transitions in the intra-data center market, according to UBS. 
  • Oclara's growth over the past two years was a result from being first to market with key 100g products and will likely slow, Venkatesh said.
  • Acacia has better exposure to the growing inter-data center market than Oclaro, he said. 

Lumentum: 'Flag Bearer' For 3-D Sensing

  • Lumentum's 25-percent decline in share prices over the past three months reflects risks to 2018, but undervalues the company's opportunity in 2019, Venkatesh said. 
  • Lumentum's competition lacks the necessary capacity to satisfy more than 30 percent of 3-D sensing demand in 2019, according to UBS. 
  • Aside from the iPhone, Android makers are moving to include 3-D sensing technologies which adds another potential catalyst to Lumentum's story, he said. 

Related Links:

This Analyst's Bearish Stance On Lumentum No Longer Applies

Has The Optics Sector Become A Stock Picker's Market?

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Posted In: Analyst ColorPrice TargetReiterationAnalyst Ratings3D sensingChinaLoop Capital MarketsopticalOptical StocksTejas VenkateshUBS
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