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Applied Optoelectronics Faces Competitive Pressure, Piper Jaffray Says In Downgrade

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Applied Optoelectronics Faces Competitive Pressure, Piper Jaffray Says In Downgrade
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Fiber optic company Applied Optoelectronics Inc (NASDAQ: AAOI) is in for a "brutal" year of competition as well as China's decision to source optical components in-house, according to Piper Jaffray. 

The Analyst

Piper Jaffray analyst Troy Jensen downgraded shares of Applied Optoelectronics to Neutral from Overweight and reduced the price target from $51 to $40.

The Thesis

Applied Optoelectronics could see margin compression due to competitive pressure, Jensen said in a Monday note. The analyst said gross margins could trend down throughout 2018.

With the sentiment for the 100G cycle having peaked, the industry might have to wait for the 400G cycle that's set to begin in early-to-mid 2019 to drive meaningful revenue growth, margin expansion and stock price appreciation, Jensen said. 

When Applied Optoelectronics' reports fourth-quarter results Feb. 21, Piper Jaffray  expects revenues to fall within the company's guidance range of $81 million to $90 million. Revenues and EPS are expected to be within the low-to-middle portion of the guidance, Jensen said. 

"We believe AAOI and the rest of the industry benefited from a significant supply-demand imbalance in 2016-17, but the industry has reached an equilibrium or is potentially tipped more toward over capacity for most flavors of QSFP28 transceivers," the analyst said. 

This will lead to pricing erosion and gross margin compression for most in the space, according to Piper Jaffray. 

The firm project sthat Applied Optoelectronics and the optical component space will underperform other tech sectors.

The Price Action

Applied Optoelectronics shares were up about 16 percent over the past year until last Friday.

Reacting to the downgrade, the shares of the company were slumping 6.78 percent to $33.55 on Monday.

Related Links:

This Research Report Sent Shares Of Applied Optoelectronics Lower

Wall Street's M&A Chatter From August 29: Rockwell Collins, Applied Optoelectronics, Digiliti Money

Latest Ratings for AAOI

DateFirmActionFromTo
Feb 2018Cowen & Co.MaintainsOutperformOutperform
Feb 2018Craig-HallumDowngradesHoldSell
Feb 2018B. Riley FBRMaintainsNeutralNeutral

View More Analyst Ratings for AAOI
View the Latest Analyst Ratings

Posted-In: fiber optics Piper Jaffray Troy JensenAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

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