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Finisar (FNSR - Free Report) delivered weaker than expected results and guidance on June 15, while also reporting record revenues of $1.449 billion for their fiscal year 2017 ended April 30.

Finisar CEO Jerry Rawls was quoted in the company report...

"Despite continued robust demand in our fourth fiscal quarter for our 100G QSFP28 transceivers for datacenter applications, which grew over 30% over the third quarter, our overall revenues were $357.5 million, a decrease of $23.1 million, or 6.1%, compared to the third quarter. This decline was primarily the result of a decline in telecom revenues due to lower revenues from our Chinese OEM customers and the impact of the full three months of the annual telecom price erosion."

The China Factor

The "China inventory correction" theme took a toll on several optical equipment companies since then, while FNSR shares instead gapped 8% higher on June 16 and continue to hold near those levels just below $28.

But analysts still had to lower earnings estimates based on the company's lowered guidance, even if they still remained generally positive.

The current fiscal year 2018, which began in May, saw the Zacks consensus EPS forecast drop from $2.01 to $1.71. This is the primary reason the stock has fallen into the cellar of the Zacks Rank.

William Blair analyst Dmitry Netis commented on the current quarter revenue expectation being guided about $26 million below consensus by the company, and EPS 11-cents lower, as he reiterated his Outperform rating on Finisar shares. Here were his some of his comments, courtesy of StreetInsider...

"Overall, the results were not far from what was expected, with management using the current reset as an opportunity to clear the decks on fiscal 2018. Management commentary for the fiscal second quarter (October), postulating resumption of growth, was more optimistic, helped by lower overhang from China (at a low-teens percentage of revenue versus 20% historically) and due to continued strength of 100G QSFP28 transceivers and VCSEL arrays for 3-D sensing."

The 30-cents that analysts took out of this year's consensus saw Q2 (October) take a the next biggest hit. Here's how the quarterly estimates settled out...

July Quarter: EPS from $0.45 to $0.31

October Quarter: EPS from $0.51 to $0.43

Jefferies analyst James Kisner reiterated his Buy rating on Finisar, and his price target of $34, citing that the earnings miss was widely expected and embedded in the share price already.

Kisner believes the bigger issue to impact the share price will be expectations around the company's shipment of 3D sensing components in the October quarter. He noted that tens of millions of units delivered could surprise investors with greater potential upside.

Bottom line: So far, investors are treating Finisar's latest report as fully expected. But until the earnings estimates start going back up, it may be best to sit tight until the optics are brighter here.

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