Will This Stock Spring Back to Life Next Week?

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Companies plying their trade in the optical networking industry burst into life last week after Ciena (NASDAQ: CIEN) posted results that took everyone by surprise. Suppliers of optical networking components have trended higher since Ciena released its results, and as such, I won’t be surprised if Finisar (NASDAQ: FNSR) steps on the gas next week (on June 19) when it releases its fourth-quarter results.

The stock is down around 10% this year, but considering the positive vibes in the industry and Finisar’s own strength, I think it could provide a solid boost and momentum to its stock price. Let’s see what’s expected of Finisar and how its outlook shapes up.

On revenue

Analysts, according to Yahoo! Finance, expect revenue of $243 million in the quarter, which translates into a jump of just 1.3% from the year-ago period. However, Finisar shouldn’t have much difficulty meeting this estimate as the company had itself guided for revenue between $235 million and $250 million when it released its third-quarter results.

The consensus estimate has been adjusted upward and is sitting in the middle of Finisar’s guidance. However, one can expect the company to deliver a beat on the top line even though Finisar had said that a drop in the prices of telecom components would weigh on its telecom business. But then, the aggressive infrastructure upgrades by its customers and the fact that Finisar says that it has been recording design wins should prove to be tailwinds.

In addition, Finisar’s datacom business has been performing well of late, and the presence of strong customers, such as Cisco, and the adoption of its new products should provide further thrust to the top line.

On earnings

Analysts expect Finisar to earn $0.17 a share in the quarter, down from $0.21 in the year-ago period, but at the mid-point of its own guidance of $0.15-$0.19 a share. The company has a mixed history as far as bottom line performance is concerned with two decent beats in the last two quarters, a big miss in the one before those two and a break-even fourth quarter last year.

As it stands, Finisar should at least meet estimates this time, but if the effect of price reductions of telecom components weighs too heavily on the company, then we might not be able to see a beat. However, the fact that Finisar has been improving its capacity to meet strong demand indicates that the company is witnessing strong orders, and a higher capacity might lead to better margins and better earnings.

On outlook

When Finisar reported its third-quarter results in March, the stock dropped despite ticking all the right boxes -- a good quarterly report and a decent outlook. However, a few analysts were concerned about the prospects of the company’s telecom side of the business. But then, the recent cues from the industry are positive, and the fact that Finisar itself had issued decent guidance last time means that we should expect a good performance from its telecom business.

As I mentioned in the beginning, Ciena recently posted better than expected results and backed it up with a solid outlook, which was well ahead of what analysts were expecting. Ciena expects to benefit from the multi-year upgrade cycle of telecom infrastructure and its bellwether clients such as AT&T (NYSE: T). The aggressive roll out of 4G networks in North America and abroad should be tailwinds for Ciena, and the presence of a customer such as Ma Bell further strengthens its position.

Now, even Finisar is poised to benefit from AT&T’s network upgrades as the carrier’s spending would positively affect Finisar’s top line. More importantly, AT&T should continue to propel Finisar’s telecom business for the next couple of years as it would be spending $20 billion to upgrade its network apart from spending $21 billion this year. AT&T is accelerating its 4G LTE deployment this year, and this is certainly good news for the likes of Finisar.

Moreover, as I’d said earlier, the datacom business has been doing well and had improved 11% in the previous quarter. The long-term prospects of this business look good as more data centers are built and its major customer Cisco gets more aggressive on the cloud.

With strength in both the telecom and datacom businesses, Finisar could once again provide a decent outlook.

The bottom line

On the whole, Finisar looks well-placed to break out next week, and there are chances that it won’t disappoint. For the complete analysis of the company’s results and for more clarity on where it is headed, check back again next week. 

Or read on for more ideas

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