Shares of optical networking equipment maker Infinera (INFN) have enjoyed a wild ride of late, first collapsing on the speculation that it had lost big 100G optical contract with Verizon to a competitor — but then bouncing back with a fury today, rising 30 percent after reporting earnings.
Infinera confirmed on yesterday’s conference call that it lost the Verizon deal, but it turned out not to matter much anyway. Given the recent downer news on Verizon, investors had been running scared and they were caught off-guard by a suprisingly upbeat report that reversed nearly all of the loss since the Verizon news, broken by anlyst Jefferies analyst George Notter, circulated over the last few weeks.
Infinera’s fourth-quarter, 2013 revenues came in at $139 million, up 9% from last year’s comparable quarter, exceeding many analyst expectaitons. Infinera said it added three DTN-X customers in the quarter, bringing the total count to 42. The earnings were at breakeven, exceeded most estimates of a small loss. The company showed strong growth in Asia with reveue up to $12 million over the prior quarter’s $4 million.
The Verizon news was overdone anyway: Infinera was bidding as a second-source deal. Infinera has pointed this out and also hinted that it may be winning another big deal as a primary source. It’s believed that Alcatel-Lucent was very aggressive in the bidding, driving down the profit margin, making the contract unattractive. In a research note this morning, MKM Managing Director Michael Genovese referred to Alcatel-Lucent’s “desperation tactics.”
Genovese has Infinera rated as a “Buy” and this morning raised his price target on the stock to $11, saying that Infinera’s “upbeat” call and guidance suggested more growth is coming in 2014.
“The solidly better than expected 1Q14 guidance (ex GMs) postulates that many of the U.S. customers that did not flush their budgets in 4Q13 are getting an early start on spending in 2014 with better than seasonally normal purchase activity,” wrote Genovese in his research note.
Meanwhile, Infinera added several new customers in its DTN product line, and now says it has a total count of 131, which a mixture of large telco and cable operators in the mix.
Some investors might now be asking why they didn’t grab some shares on last week’s flush. Infinera currently has a market cap of about $1.1 billion. It has not yet broken even to profit on an annual basis, but analysts currently expect it to make about 14 cents per share in 2014. Given the swing from loss to profits, the P/E ratio is not meaningful at this point. The company is well capitalized with about $350 million in cash.
(Dislcosure: No position in Infinera.)