Continuing the strong trend of a volatile and aggressively traded optical sector, optical-networking component maker Finisar raised eyebrows with a second-quarter fiscal year earnings release that beat estimates and boosted the the stock 2% to $22.24, up .48
The company’s second quarter revenues came in at $290 million and earnings were at .43 earnings per share, ahead of many analyst estimates. Better yet, the company raised guidance, calling for $290-$305 million in sales in its fiscal third quarter.
Finisar’s managers cited strong demand for optical products in datacom, while telecom remained somewhat weak, coming in below forecast.
Datacom revenues, which are 70% of the company’s total, increased 46% from the same quarter last year. Telecom sales increased 6% from the prior quarter but were down 6% from the last year.
Research shop MKM Partners reiterated its buy rating on the stock, citing strong demand for data-networking products.
“Datacom revenues could grow in the double-digits y/y for several more years as Data Center interconnects continue to transition to higher speeds and greater Optical content,” wrote MKM Partners Managing Director Michael Genovese in a research note. “The current strong revenue growth is driven by switching modules moving from 1Gbps to 10Gbps and 40Gbps. A similar upgrade in next-gen Server connectivity is likely to occur in the coming years keeping solid market momentum going.”
MKM increased its fiscal year (FY) 2014 and 2015 revenue estimates to $1.15B and $1.28Bfrom $1.12B and $1.23B and raised FY14/FY15 EPS estimates to $1.58/$1.81 from $1.41/$1.67. It also raised the 12-month price target on the stock to $30 based on 16.5x FY15 earnings estimate.
The news puts back into play a strong trend in optical networking growth, though it’s not come without a few bumps in the road. Optical networking provider Infinera (INFN) triggered a selloff in the optical sector in October, seen by some as a buying opportunity. That was combined with an extremely weak quarter from Cisco, casting further doubt on the growth of networking products.
But Finisar has apparently moved the thinking back in the other direction, demonstrating that the market may in fact be more dynamic, with strong growth in some areas and more weakness and others.