Piper Jaffray analyst, Troy Jensen, thinks that the theme of growth in optical communications (driven by 100G Datacom and telecom upgrades) is showing signs of significant acceleration after Fabrinet's (NYSE: FN) earnings results. No change to Overweight rating but the price target increases to $33 from $29.

Fabrinet reported an outstanding quarter with revenues, margins and EPS all coming in above consensus estimates, while also guiding the March quarter well above Street expectations. FQ2 revenue of $233.0M grew 23.7% Y/Y and was ~ $12M ahead of consensus ($221.0M) and well above the midpoint of management’s guidance ($218-222M). Revenues in the quarter were driven by strength in both business segments, but the upside was largely affected by strong demand for 100G optical components (in both Datacom and Telco) and revenues derived from New Programs.

Gross margins increased 20 bps Q/Q to 12.5%, on scale efficiencies. Non-GAAP EPS of $0.50 was nicely above consensus of $0.46 and the company’s prior guidance of $0.45-0.47.

Optical Communications revenue of $168.7M increased 9.0% Q/Q and 26.1% Y/Y, contributing 72.4% of total sales. During the quarter, the split between Telco and Datacom was approximately 54% and 46%, respectively, which is identical to the prior quarter.

Management guided for FQ3 revenue of $240 - 244M versus consensus estimates of $216.6M, suggesting a Y/Y increase of 27.7% at the midpoint. The company is targeting non-GAAP EPS of $0.52 - $0.54 for the quarter (cons of $0.45).

The price target of $33 is based on a 13x (prior 12x) our CY16 operating income assumption plus cash. No change to Overweight rating.

For an analyst ratings summary and ratings history on Fabrinet click here. For more ratings news on Fabrinet click here.

Shares of Fabrinet closed at $25.09 yesterday.