Demand Up for Hold-Rated Finisar

As a leading provider of fiber optical products as well as network test and monitoring systems, Finisar Corporation (FNSR - Snapshot Report) has gained a strong position in short-distance, low-cost portion of the Ethernet market. With growing demand for bandwidth, particularly for video and IPTV, demand for high-speed bandwidth solutions such as 10 Gigabit Ethernet has increased rapidly. Given its leadership position in LAN/SAN and Metro Ethernet products, and its strong position in the growing 10/40 Gb/s optical transceiver market, we expect the company to experience strong top-line growth in fiscal 2009.

Though the company missed revenue expectations in two out of the past three quarters, it has delivered better third quarter revenue and expects strong results for fourth quarter 08 and first quarter 09. Shares of Finisar Corporation are currently trading at a P/E multiple of 14.8x 2009 EPS estimate of $0.09. On a P/S multiple, FNSR is trading at 0.8x our 2009 revenue estimate of $1.60 per share. With a strong product portfolio and vertically integrated business model, FNSR is well-positioned in the fiber optic market.

With restructuring efforts in the past, the company has been able to narrow down its operating losses and reduce its cost of sales. Given its leadership position in LAN/SAN and Metro Ethernet products and its strong hold in the growing 10/40 Gb/s optical transceiver market, we continue to believe that Finisar will trade in line with most of its relevant competitors. As such, we maintain our Hold rating and our target price of $2, which is based on a multiple of 22.2x our 2009 EPS estimate and 1.2x our 2009 revenue estimate.

Anita Mohata contributed to this report.

Read the full analyst report on FNSR.

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