MKM Upgrades Finisar To Buy Following Q1 Beat, Solid Guidance

Finisar Corporation FNSR reported its Q1FY17 results meaningfully ahead of expectations, while issuing upbeat guidance for Q2.

MKM Partners’ Michael Genovese upgraded the rating on the company to Buy, while raising the price target from $21 to $35.

Q2 Beat

Finisar reported its Q1FY17 revenue at $341 million, with gross margin of 33.1 percent and EPS of $0.38, well ahead of the estimates.

The Telecom segment witnessed broadbased improvement, with sales rising 21 percent year on year and 29 percent quarter on quarter to $98 million, again beating the estimate.

Sales in the Datacom segment came in at $243 million, missing the estimate by $10 million, driven by declines in 40G in the U.S. and sub-10G for Wireless in China.

On the other hand, 100G Datacom module revenues saw robust growth of 115 percent year on year.

Upbeat Guidance

For Q2FY17, management expects 100G Datacom and Telecom demand to continue to improve, guiding to a 7 percent rise in revenues, quarter on quarter, to $355-$375 million, ahead of the estimate.

Gross margins were guided to about 34 percent, again beating the estimate, driven by positive volume and product mix trends.

Finisar guided to EPS of $0.44-$0.55 for the quarter. The analyst believes that North America and China are driving a significant part of the demand improvement for the company.

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