Shares of Finisar Corporation FNSR dropped Friday after the optical communications component maker reported below-consensus Q3 non-GAAP earnings per share and flat revenues.
The Analyst
Unperturbed by the negative results, Stifel analyst Patrick Newton remains at Buy on Finisar, but lowered the price target from $24 to $22.
The Thesis
Finisar's earnings miss was due to a lower gross margin percentage, which was impacted by mix and the impact of one month of annual telecom pricing reductions that were at the high end of the normal ranges, Newton said in a note.
The company's Q4 2018 earnings per share guidance was subpar, with the management's view suggesting gross margin will continue to remain pressured at 27-28 percent, the analyst added.
Notwithstanding the lackluster results and guidance, Newton is positive on Finisar, premised on troughing of margin, the potential for 3D sensing and a rebound in China. The analyst said further downside is less likely, as historically shares wash out as gross margin bottoms at sub-30 percent, with the results.
Stifel noted the company remained positive on the 3D sensing opportunity long-term, with the investment in the Sherman facility expected to boost revenue capacity by $100 million per quarter.
The Price Action
Finisar shares were down about 40 percent over the past year. Reacting to the results Friday, shares were down 8.7 percent at $18.46.
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