Finisar Is Oversold, Morgan Stanley Says In Upgrade

Finisar Corporation FNSR's stock has lost around $10 per share over the past year — and its current valuation is not only attractive, but incorrectly implies the optical supplier has no catalysts ahead, Morgan Stanley said.

The Analyst

Morgan Stanley's Meta Marshall upgraded Finisar's stock rating from Equal-weight to Overweight and lowered the price target from $21 to $20.

The Thesis

The overall datacomm components sector faces "meaningful challenges" ahead, but the "valuation penalty" assigned to Finisar is overblown, Marshall said in the Thursday upgrade note.

When the analyst initiated coverage of Finisar, the stock's 2019E P/E was 1.5x below the comparable median, which seemed "appropriate" at the time, Marshall said. But the 2019E P/E now stands at four turns below the median of 16.4x and more than 10 turns below on an ex-cash basis at 8.4x versus the 18.9x median. 

In addition to an attractive valuation, Finisar boasts multiple catalysts ahead, Marshall said:

• New CEO Michael Hurlston is set to complete a full strategic review of the company and should share findings in June.
• The introduction of a lower-cost CWDM4 should help its presence and profitability in the datacomm market.
• If the company finalizes its VCSEL facility in Sherman, Texas in the fall of 2018 instead of early 2019, it could contribute an incremental 20 to 40 cents upside to EPS expectations.

Price Action

Shares of Finisar were trading higher by 6.3 percent at the time of publication Thursday.

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