Goldman Sachs Upgrades Finisar (FNSR) to Buy
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(Updated - October 11, 2016 9:08 AM EDT)
Goldman Sachs upgraded Finisar (NASDAQ: FNSR) from Neutral to Buy with a price target of $39.00 (from $24.00), implying upside of 27%. Analyst Doug Clark thinks the company will capitalize on telecom product cycles and drive revenue.
"We expect Finisar to capitalize on two incremental product cycles in the Telecom market (in addition to continued Datacom growth). Market share expansion through ROADMs and CFP2-ACO should drive further acceleration in the Telecom segment (~30% of sales) as well as for the overall company in CY17. While Finisar lags peers in 100G exposure (at ~30% of Datacom vs. peers ~60%), mix has improved meaningfully in the past 2 quarters and now 100G eclipses 40G exposure (20% of Datacom)," said Clark.
The analyst added, "Given its vertical integration, we estimate Finisar offers the most potential margin expansion among traditional component companies, and model >300bps of gross margin expansion in CY16 and nearly 150bps of expansion in CY17. If Finisar’s CY17E gross margins were to reach prior 2013 peaks, it would imply another $0.13 of EPS upside vs. our above consensus forecasts."
Discussing valuation, the analyst said, "FNSR trades at a discount to peers on both EV/S and P/E and only modestly above its median 5-year P/E multiple. We believe it should trade closer to peers given product cycle exposure, comparable EPS growth, and margin upside."
Shares of Finisar closed at $30.64 yesterday.
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