The fiber optic/optical component sector tends to move together as a group. Those who have participated in the sector know that the sector is subject to explosive moves in both directions. All the stocks we follow in the sector are down substantially from their 52-week highs; however, we have observed over the years that the best entry point for this sector is when business stabilizes. We think last week’s earnings report and conference call from Finisar (FNSR) may be the data point that we were waiting for to tip us off that the time may be ripe to start accumulating leading stocks in this sector. Let’s examine the five companies we follow in the fiber optic/optical component sector.
Finisar Corporation is a $1.8 billion market cap company that designs, manufactures and markets optical subsystems and components. The stock is down 58% from its 52-week high of $46.09. Last week the stock rallied as the company reported Q1 results in which revenues were in line with expectations and EPS beat by $0.03. FNSR went on to forecast revenues for the current quarter of $235-250 million and EPS of $0.20-0.24 per share, ahead of consensus on revenues and in line with EPS.
JDS Uniphase Corporation (JDSU) is a $2.9 billion market cap company that provides optical products and communications test and measurement solutions. JDS reported Q4 results on August 17 which were generally positive; however, JDSU lowered current quarterly consensus, citing inventory corrections. We think with the current negative market psychology that the market overlooked the fact that the company is expecting the inventory correction to be short term in nature. We note that the test and measurement segment of the company represents 44% of revenue, so JDS is not the pure play that some still perceive. The company is forecast to earn $0.81 this year and $1.05 per share next year. The stock is down 57% from its 52-week high of $29.12.
Infinera Corporation (INFN) is a $740 million market cap company that provides optical networking systems. The stock is down 46% from its 52-week high of $12.90, and even more from its 2007 high of around $30 per share. The company has the revolutionary photonic integrated circuit technology but the adoption has been frustratingly slow, which has punished the stock. The company is forecast to lose money this year and basically break even next year. If INFN's Digital Optical Network architecture is adopted on a wide scale as the company believes, the stock should prove explosive.
Oclaro, Inc. (OCLR) is a $222 million market cap company that designs, manufactures and markets optical and laser components, modules and subsystems for the telecom market. You might remember it under its pre-2009 name of Bookham Technology. The stock is down 77% from its 52-week high of $18.95. Revenues last year increased to $466 million from $392 million. This year the company should do $483 million in revenues but is forecast to have red ink of 34 cents per share. Next fiscal year's forecast is for revenues to increase again to $574 million and EPS to be $0.43 in the black.
EXFO Inc. (EXFO) is a $406 million market cap company that provides next generation test and service system solutions for telecom and various optical technologies. The stock is down 52% from its 52-week high of $13.19. EXFO has the #1 ranking in market share for portable optical testing. EXFO has increased EXFO's market share for 25 years. EXFO sales last year were a company record $228 million. For the current year, revenues are forecast at $270 million and EPS of $0.28, with both slated to rise next fiscal year to $313 million and $0.49 per share, respectively.
Assuming the economy avoids the “double dip” scenario, we feel the Finisar earnings release and conference call could represent an inflection point for investors interested in the optical sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.