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Finisar Downgraded By Raymond James Before Thursday Q3 Report

Finisar Downgraded By Raymond James Before Thursday Q3 Report
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Finisar Corporation (NASDAQ: FNSR) is scheduled to report third-quarter results Thursday that could show some price and margin compression, according to Raymond James.

The Analyst

Raymond James' Simon Leopold downgraded Finisar from Strong Buy to Outperform with a price target lowered from $26 to $22.

The Thesis

Finisar's Datacom business accounts for more than 75 percent of total sales, and the segment is its "largest short-term risk," Leopold said in the downgrade note. (See the analyst's track record here.) 

Recent trends within the hyperscale market show cannibalization of LR4 solutions in favor of CWDM4s, the analyst said. 

The unfavorable trends in the optical sector not only represent a revenue headwind for Finisar, but the potential for share loss to "price aggressive" competitors looking to make their mark in the space, Leopold said. While Chinese demand likely improved in December, the Chinese New Year and inventory on hand represent a risk for the April quarter, he said. 

Finisar's Telco market remains a "bright spot" in the North American market, but given its smaller size, any opportunity will likely be "limited," the analyst said. Similarly, the 3-D business represents another "source of optimism," but it will take time for the company to ramp its capacity and grow margins, Leopold said. 

Finisar is likely to delive revenue in-line with the analyst's $336-million estimate — the consensus estimate is $333 million — and earn 24 cents per share against a consensus estimate of 23 cents, according to Raymond James. 

Price Action

Finisar shares were jumping more than 5 percent at $19.08 at the time of publication Monday. 

Related Links:

Has The Optics Sector Become A Stock Picker's Market?

5 Reasons Finisar Is An Analyst's Top Pick For 2018

Latest Ratings for FNSR

Apr 2018Morgan StanleyUpgradesEqual-WeightOverweight
Mar 2018Stifel NicolausMaintainsBuyBuy
Mar 2018NeedhamDowngradesBuyHold

View More Analyst Ratings for FNSR
View the Latest Analyst Ratings

Posted-In: CWDM4 LR4 optical Optical StocksAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga


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