Shares of Finisar (FNSR) are on the rise after Morgan Stanley analyst Meta Marshall upgraded the stock to Overweight on valuation and ahead of potential catalysts in the second half of the year and into 2019. Also bullish on Finisar, William Blair analyst Dmitry Netis told investors the shares are oversold at current levels, creating a buying opportunity. BUY FINISAR: In a research note to investors this morning, Morgan Stanley’s Marshall upgraded Finisar to Overweight from Equal Weight and trimmed her price target on the stock to $20 from $21. While the analyst acknowledged that the datacomm components sector faces meaningful challenges, the note makes the case that the valuation penalty has become too large for Finisar, particularly when looking at potential catalysts in the second half of the year and into 2019. Near-term earnings could continue to see pressure due to 100G datacomm component pricing, but upcoming catalyst opportunities could change the dialog around the name starting in the second half of 2018, Marshall noted, adding that the catalysts include completion of the new CEO strategic review in June, introductions of cheaper CWDM4 modules later in the year and 2019, and incremental news around progress on Sherman VCSEL facility. OVERSOLD AT CURRENT LEVELS: Meanwhile, William Blair’s Netis pointed out in a research note of his own that shares of Finisar have lost nearly 30% of their value since the March 8 earnings report and are down nearly 60% from highs in February 2017. While acknowledging that many fundamental reasons contributed to the sharp decline over the last year, including China oversupply, severe price erosion in datacomm and generally poor execution, the analyst sees “several reasons for investors to bottom-fish their entry into the stock.” The risk/reward is “highly asymmetric” with the shares trading at book value, Netis told investors, adding that he finds it highly likely that the new CEO will announce an organic restructuring plan, which he views as a potential catalyst along with a potential acquisition or leveraged buyout. The analyst reiterated an Outperform rating on Finisar’s shares. PRICE ACTION: In morning trading, shares of Finisar have gained over 8% to $15.91. OTHERS TO WATCH: Other companies in the optical subsystems and components space include Ciena (CIEN), Infinera (INFN), Lumentum (LITE), Oclaro (OCLR) II-VI (IIVI) and Acacia Communications (ACIA).
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