Raymond James downgraded Finisar Corporation FNSR Wednesday, but Piper Jaffray has a different take and upgraded the optical name along with its peer Acacia Communications, Inc. ACIA.
- Piper Jaffray's Troy Jensen upgraded Finisar from Neutral to Overweight with a price target lifted from $18 to $26.
- The analyst also upgraded Acacia Communications from Neutral to Overweight with a price target lifted from $38 to $46.
Confidence In Finisar's New CEO
Under the leadership of Finisar's new CEO Michael Hurlston, the company is better-positioned to take advantage of favorable industrywide trends and improve its cost structure and execution, Jensen said in the upgrade note. (See his track record here.)
The recent reporting season was "fairly good" for the optical sector, with nearly all of Finisar's rivals reporting revenue and/or guidance upside, the analyst said.
Encouragingly, demand in China is returning and the pipeline in India is strong, while the datacom segment is seeing improving pricing dynamics, he said.
At the company level, Finisar appears to be on track to start production volume of 3-D sensing products from the new VCSEL fab before the end of the year, Jensen said. Before the new production is online, the company is capped at just $20 to $25 million in VCSEL sales, he said. At mass scale, the products come with a gross margin slightly above 50 percent, as opposed to just 25 percent in the recent quarter.
Finisar is seeing early signs of a recovery in the core optics segment, Jensen said, adding that the 400G cycle will start to develop in 2019 and see a meaningful inflection in the bottom half of the year.
Acacia: Return To Bullish Stance
Similar to Finisar, Acacia Communications is taking advantage of industrywide favorable trends, Jensen said in a separate upgrade note.
At the company level, Acacia boasts "the most robust pipeline" of new products — CFP2-DCO, AC1200, 400GZR — that offer a catalyst for revenue growth, the analyst said. The company is taking advantage of recent design wins at a Chinese OEM and Cisco Systems, Inc. CSCO that create "healthy" revenue growth and visibility, he said.
The case against Acacia's stock was made in April in reaction to the ZTE sales ban, to which Acacia has significant exposure, Jensen said. But demand in China is returning and ZTE is ramping its supply chain, so a return to a bullish stance is appropriate once again, he said.
Finisar shares were rallying 6.9 percent to $19.94 at the time of publication midday Thursday, while Acacia shares were similarly trading up 8.6 percent to $41.52.
Related Link: Benzinga's Top Upgrades, Downgrades For August 23, 2018
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