MRV: Stock Way Up Despite Delisting Threat

So, if you were an investor in a company that just announced the acquisition of another company with questionable accounting practices, and that is under the cloud of a possible stock delisting, would it worry you that the company you’re invested in has just lost its chief financial officer?

Apparently not! Shares of communications equipment small-cap stock MRV Communications (MRVC) closed up 5.26% Friday at $3 on the heels of the company’s announcement Thursday that CFO Kevin Rubin has resigned, just a week-and-a-half or so after the company closed on the acquisition of fiber-optic transceiver maker Fiberxon.

Fiberxon is a company with questionable accounting practices that have raised the prospect MRV would be de-listed by the NASD. Eric has outlined the whole story in some detail.

Well, Thursday MRV met with analysts to go over more particulars of the deal, and the upshot is that the situation appears now even more confusing, as two analysts who downgraded last week are now going in different directions, with Roth Capital’s Dave Kang upgrading the stock from Hold to Buy, and Needham & Co.’s John Harmon maintaining the stock at Hold.

Roth’s Kang, simultaneously dropping his price target on MRV to $3.90 from $4.00, nonetheless expresses greater confidence in the company’s upside given that the Fiberxon acquisition won’t be as dilutive to MRV as he previously thought. Kang says Fiberxon’s gross profit on optical components it sells to, among others, Alcatel-Lucent (ALU), is around 22%, better than Kang had thought, bringing down profit this year by a penny and next year by 4 cents from his original estimates, for a 1-cent loss this year and 8 cents profit next year.

At the same time, Fiberxon’s business is growing at a 61% year-over-year clip, causing him to boost his sales estimates for MRV way, way up, from $387 million this year to $424 million, and from $423 million next year to $512 million. But nowhere does Kang say to what extent he’s still worried about MRV’s delisting, if at all. A call to Kang for comment was not returned Friday afternoon.

Meanwhile, Needham’s Harmon says “We are maintaining a Hold rating due to the risk of delisting and other issues.” Harmon says management’s explanation for rushing to close the deal with Fiberxon is that it expects it can clean up the accounting mess at Fiberxon faster with the firm under its control than before the close of a deal. Plus, it looks like Fiberxon was getting a competing bid from another potential acquirer, and MRV had to close the deal.

Hmm, neither of those answers inspires a lot of confidence. Well, Harmon’s clearly not entirely satisfied with this, hence the Hold rating, but he does add that the company is one of the better ways to play a resurgence in fiber optics, especially by being a supplier to the fiber-to-the-home FiOS project at Verizon Communications (VZ).

Well, as I said before, investors are seeing the silver lining. I guess we’ll just see what the NASD has to say.