Needham Lowers Fabrinet's Price Target, Cites Loss Of Huawei Sales

U.S.-based Fabrinet FN could indirectly lose out on potential revenue from China's Huawei being blacklisted to buy equipment from American companies.

The Analyst

Needham's Alex Henderson maintains a Buy rating on Fabrinet with a price target lowered from $70 to $62.

The Thesis

Huawei doesn't buy equipment from Fabrinet directly but does so indirectly through Lumentum Holdings Inc LITE, Henderson wrote in a note. Fabrinet's management said it's "trying to determine" its exposure to Huawei but the analyst says there's enough public information to assume Fabrinet's sales exposure to Huawei is between 7 percent to 10 percent.

As such, Fabrinet's 2020 revenue estimate is lowered from $1.716 billion to $1.556 billion although the impact to the current quarter will be limited as production is already in process, the analyst said. If the U.S. and China reach a trade agreement that restores Huawei's access to U.S. suppliers, it would be reasonable to restore prior estimates and the news could help Fabrinet's stock "vault higher."

Price Action

Shares of Fabrinet were trading lower by more than 3 percent at $43.39 on Tuesday afternoon.

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