Analyzing Wednesday's News Movers: VirnetX, Biolase and Finisar

Includes: BIOL, FNSR, VHC
by: GuruFundPicks

VirnetX Holding Corp. (NYSEMKT:VHC), a developer of software and technology solutions for secure real-time communications over the internet, was moving lower Wednesday, down as much as 10% in the morning session, below its $27.50 close Tuesday. The stock has been up from $4 since last April on news of a $200 million patent infringement settlement with Microsoft Corp. (NASDAQ:MSFT) last May and then potential for more settlements based on similar lawsuits filed against Apple Inc. (NASDAQ:AAPL) and Cisco Systems Inc. (NASDAQ:CSCO), Mitel Networks (NASDAQ:MITL) and Siemens (SI), among others.

VirnetX patents are believed to be critical to the 4G LTE security specifications developed by the 400+ member Third Generation Partnership Project (3GPP), and as such, VHC could be on the verge of becoming a key technology licensing company. The stock reversed Wednesday on very high volume after being up as much as 5% after the open and then down as much as 10% later in early morning trading. Based on Wednesday’s high-volume reversal action after the long surge from $4 last April, the stock has most likely reversed short-term and can be expected to correct at least modestly. But the longer-term picture is unclear as it depends on the value the company can extract from the market for its IP, which has been estimated to be as high as $1 billion in recurring licensing revenue for the company, in which case the company can have additional significant upside.

Biolase Technology, Inc. (BLTI), the world’s leading dental laser company, was moving higher Wednesday, up as much as 21% in the morning session, above its $4.84 close yesterday. The stock has been in a strong rally, up from the $1.50s in mid-January when it projected strong revenue growth of 120-140% to $55-60 million for the FY ending December 2011, well above the $26 million it reported in FY 2010. Since then, the company once again raised revenue guidance for FY 2011 to $55-60 million in mid-March. The stock was up Wednesday based on raising guidance for the March 2011 quarter to $10.4 million from the $9.6 million single analyst estimate and the $9.3-9.8 million that it projected previously for the quarter.

The FY 2011 guidance was left unchanged. It is contended that with the stock up almost 400% since the initial raising of FY 2011 guidance, it already factors in the slight raising in guidance announced Wednesday for the March 2011 quarter. At just under $6, the stock can still be considered cheap based on its projected up to 150% revenue growth for FY 2011. It is likely that the street may wait for further confirmation of revenue growth and profitability for the next couple of quarters before it can go any higher, and as such, it should have a consolidative/corrective bias going forward, at least in the short- to intermediate-term.

Finisar Corporation (NASDAQ:FNSR), a leading provider of optical subsystems and components, was moving higher Wednesday, up as much as 10% in the morning session above its $24.14 close Tuesday. FNSR makes optical networking products that are used to interconnect equipment in short-distance local area networks (LANs), storage area networks (SANs), and longer distance metropolitan area networks (MANs), fiber-to-the-home networks (FTTx), cable television networks (CATV), and wide area networks (WANs). It was moving higher Wednesday along with the rest of the optical networking group including Oclaro, Inc. (NASDAQ:OCLR), JDS Uniphase Corp. (JDSU) and Ciena Corp. (NASDAQ:CIEN), on an upgrade of CIEN by Bank of America Merrill Lynch to buy from neutral and lifting the target to $34 from $26.

This, along with optimism that the optical networking sector had bottomed out, led to advances despite OCLR projecting March 2011 quarter revenue well below analyst estimates. FNSR is projecting $1.72 in annual earnings for the FY ending April 2011, and is currently trading at a forward P/E of 15 in the lower half of its historical P/E range. It can be expected to have a bias to the upside along with the rest of the Optical Networking group.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix by Edgar Online and Zacks Investment Research.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Material presented here is for informational purposes only. Before buying or selling any stock you should do your own research and reach your own conclusion.