Applied Optoelectronics (AAOI) PT Lowered to $55 at DA Davidson; 'Near-term Headwinds Should Abate as Facebook Ramps'
DA Davidson lowered its price target on Applied Optoelectronics (NASDAQ: AAOI) to $55.00 (from $69.00) while maintaining a Buy rating.
Analyst Mark Kelleher noted forward guidance for the March quarter below expectations due to continued excess inventory at its largest hyperscale customer.
Commenting news the company announced a supply agreement with Facebook (FB) with a minimum commitment in 2018 of $125M for one product family, with additional purchases in years 2019 and 2020, the analsyt said: "Two important points: AAOI already has Facebook as a customer, so the $125M is not entirely incremental (we estimate Facebook delivered approximately $50M of revenue to AAOI in fiscal 2017); and second, the $125M is a minimum that Facebook has committed to and is related to just one product – it could purchase more. Facebook is agreeing to this contract to lock in a supply commitment from AAOI (and pricing is set). We view this agreement as a significant incremental positive for the company. Management indicated that the revenue ramp from this contract will be primarily in the second half of the year."