Bank Of America Upgrades Acacia, China Outlook 'More Positive'

Bank of America's bearish stance on Acacia Communications, Inc. ACIA can no longer be justified as the company faces multiple positive catalysts ahead.

The Analyst

Bank of America's Tal Liani upgraded Acacia from Underperform to Neutral with a price target lifted from $40 to $64.

The Thesis

Acacia's outlook in China is showing signs of improvements as its Chinese customers continue their product build ahead of China Unicom's network backbone tender, Liani said in the note. One of Acacia's biggest clients, ZTE, accounted for 31 percent of total first quarter revenue and the Chinese company saw its own revenue jump 119 percent year-over-year to $32.6 million.

Acacia remains well positioned to benefit from China's telecom buildout, but Liani said the company's high customer concentration represents a key risk to the stock. It's possible Chinese vendors are currently building their inventory and demand could drop in the near-term.

The company also has strong exposure to the data center with its AC1200 product that addresses existing demand for 600G interconnects solutions, according to the analyst. Also, the new 400zr product line offers 400G pluggable for short distance communication.

Price Action

Acacia's stock traded lower by 4 percent Monday to $56.62 per share.

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