William Blair Says 'Too Hard To Ignore' Finisar, Upgrades To Outperform

William Blair analyst Dmitry Netis could not hide the previous misjudgment on expectations from Finisar Corporation FNSR and believes he can no longer afford to ignore it anymore. He cited the macro cycle, margins and improving product mix as justification for his change of opinion. His comments come on the back of two primary factors:

1. The company delivered adjusted EPS of $0.38 on revenue of $341.33 million for the first quarter. The Street predicted an EPS of $0.30 on revenue of $332.75 million.
2. Finisar guided second-quarter adjusted EPS of about $0.44–$0.50 on revenue of $355–$375 million. Analysts are looking for an EPS of $0.32 and $342.91 million revenue.

The brokerage listed three product divisions for sharp improvement. The first is its 100G QSFP 28 that recorded more than doubling of its revenue to over $10 million in the most recent quarter. The second is WSS/ROADM delivering double-digit growth after it won business from Verizon Communications Inc. VZ. The third is CFP-ACO qualifying for the two DSP vendors with a potential to add meaningfully next year.

Related Link: MKM Upgrades Finisar To Buy Following Q1 Beat, Solid Guidance

In a research note, the analyst said, "This improved product mix is setting the floor on margins, leaving us optimistic the company can overcome annual telecom price negations in the second half of the year or improve margins further as new growth products and volumes expand."

The brokerage is not worried about pricing pressure concerns since they have been factored into the outlook. Demand expectations have stabilized.

At time of writing, Finisar was up 14.22 percent at $26.53.