Finisar Corporation FNSR reported fiscal third-quarter results after the close Thursday, earning 20 cents per share on revenue of $332.403 million against Wall Street expectations of 23 cents per share and $333.2 million.
The optical communications company guided its fiscal fourth-quarter estimates below expectations, which prompted a sell-off in the stock.
After the print, one Wall Street analyst said he continues to see the bullish case for owning Finisar, and another said investors should stick to the sidelines.
The Analysts
- D.A. Davidson's Mark Kelleher maintains a Buy rating on Finisar's stock with a price target lowered from $24 to $22.
- Loop Capital Markets' James Kisner maintains a Hold rating on Finisar's stock with a price target lowered from $18 to $17.
The Bull Case
Finisar's Q3 earnings matched consensus revenue expectations, but its earnings fell short due to lower margin, D.A. Davidson's Kelleher said in a Friday report.
Gross margin was under pressure in the quarter due to an unfavorable product mix, generally lower pricing and a non-cash impact from the increase in inventory reserves, the analyst said.
The quarter had one bright spot that supports the bull case for Finisar, Kelleher said: the company saw strong demand and record revenues for 100G QSFP28 transceivers and higher revenue for its VCSEL arrays.
Finisar's status as an industry leader in the optical network space remains unchanged, as it is one of a few companies that can offer 100G transceivers and components in multiple formats, from QSFP28 to CFP2, the analyst said. Finisar also remains a contender to secure a portion of the 3-D sensing laser market, he said.
"We continue to believe the stock offers a solid value opportunity for investors," Kelleher said.
Loop: Stay On The Sidelines
Finisar's Q3 was "weak," Loop Capital Markets' Kisner said in a Friday report.
While 100G datacom revenue came in better than expected, it came at the expense of gross margin, which "tumbled" 200 basis points from the prior quarter to 28.6 percent and fell short of the Street's 30.3-percent estimate, the analyst said.
Finisar also confirmed ongoing concerns that pricing pressure in 100G QSF28 CWDM4 "increased significantly recently," he said.
New CEO Michael Hurlston said that he is open to reviewing all aspects of the business, especially M&A, the analyst said. Encouragingly, Hurlston came from Broadcom Ltd AVGO and could oversee changes "out of Broadcom's playbook" such as greater pricing discipline or pursuing accretive M&A deals, Kisner said.
While potential changes would be welcomed over the longer term, the near-term "turbulence resulting from such shifts" coupled with "lingering concerns" that pricing and competitive pressures are not improving should keep investors on the sidelines, the analyst said.
Price Action
Stifel Still Bullish On Finisar Following Q4 Miss, Concerning Guidance
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