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Will Lower Datacom Revenues Hurt Finisar (FNSR) Q1 Earnings?

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Finisar Corporation is scheduled to report first-quarter fiscal 2019 results (ended Jul 29, 2018) after the closing bell on Sep 6. In the last reported quarter, the company delivered a negative earnings surprise of 58.3%.

It is likely to report lower year-over-year revenues in the to-be-reported quarter owing to soft demand pattern.

Factors to Consider

Finisar expects first-quarter fiscal 2019 revenues in the range of $305-$325 million, non-GAAP gross margin between 26% and 27%, non-GAAP operating margin within 4-5% and non-GAAP earnings per share in the range of 10-16 cents. It expects average shares to be approximately 116.8 million in the first quarter of fiscal 2019.

For the fiscal first quarter, the company expects capital expenditures other than for Sherman, TX to be approximately $30 million, including approximately $5 million related to the construction and fit out of the third building of the Wuxi, China manufacturing site. In addition, for the uplift of building and additional equipment, Finisar expects capital expenditures of approximately $100 million in the quarter.

The Zacks Consensus Estimate for revenues from Datacom, which accounts for the lion’s share of total revenues, is currently pegged at $250 million, down from $258 million reported a year ago. Revenues from Telecom are expected to be $69 million compared with $83 million reported in the year-ago quarter. Consequently, for the fiscal first quarter, the Zacks Consensus Estimate for total revenues stands at $316 million, down from $342 million reported in the year-earlier quarter. Adjusted earnings per share are pegged at 12 cents, down from 40 cents reported a year ago.

What Our Model Says

Our proven model does not conclusively show that Finisar is likely to beat earnings this quarter as it does not possess any of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Finisar’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, as both are pegged at 12 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

Finisar Corporation Price and EPS Surprise

Zacks Rank: Finisar currently has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Workday, Inc. (WDAY - Free Report) has an Earnings ESP of +2.80% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

HD Supply Holdings, Inc. has an Earnings ESP of +1.30% and a Zacks Rank #2.

Oxford Industries, Inc. (OXM - Free Report) has an Earnings ESP of +0.41% and a Zacks Rank #2.  

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