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Update: Oclaro's Turnaround Shows Improvement In Q3 But The Figures Are Still Negative
- Oclaro keeps selling assets to raise cash and streamline operations as there are signs of the turnaround starting to work. However, the improvement is slow and the numbers are still negative.
- The stock continued to slide in line with the industry and small-caps. My long OCLR positions expired in October. I don’t plan to renew before I see a lasting turnaround.
- I reiterate my turnaround thesis and the $2.30 target price but this has become a risky, low-conviction bet due to no downside protection available through put options.
Update: Oclaro Reported Improving Q2 Earnings Numbers But Weak Guidance Surprised
- Revenue was up 0.5% Y/Y, margins and EBITDA loss improved but Q3 guidance was surprisingly weak. EBITDA turnaround expected in a year on $100M quarterly sales.
- The contrarian turnaround thesis is taking a pause now as OCLR's Q3 guidance disappoints. The costs are lower but sales are expected to keep falling in Q3.
- I confirm my long thesis but update my target price down to $2.3 per share on weak sales guidance. The stock still offers a ~30% upside within two years.
Update: Oclaro Appoints A New Chief Commercial Officer
- Oclaro announced appointment of Dr. Adam Carter as a new Chief Commercial Officer in a move expected after the departure of the COO last month.
- The appointment of Dr. Carter will strengthen OCLR’s executive capabilities and is a positive step for its shareholders.
- I remain long Oclaro and reiterate my target price of $2.4 per share by the end of the year, with further upside in the upcoming years.
Oclaro In A Sweet Spot: Trading At Tangible Book Value While Benefits And New Products Kick In
- Due to recent slowdown in improvement, the EBITDA turnaround will probably be weaker and postponed, which rightfully spooked investors and induced a sell-off.
- Near-term risk of bankruptcy is low thanks to zero debt, cash cushion, undrawn credit line and options to sell additional property.
- The company diluted stock by 13% Q/Q in a one-off transaction to extinguish convertible debt.
- Investors should take advantage of a 7% dip created due to unwinding of arbitrage trades based on Oclaro’s addition to the Russell 3000 index.
- Oclaro has a ~13% upside on a conservative 5% sales growth expectation.
Oclaro Overdelivers On Its Promises As Turnaround Continues - More Upside Ahead
- Oclaro successfully continues to execute on its turnaround promises.
- New strategy focuses on in-house R&D and faster product launches in the 100 GBit optical networking.
- The stock has ~23% upside in 2014 alone and a potential to more than double in five years.
- Oclaro is trading 51% below intrinsic value.
- The risk/reward ratio remains positive.
Thu, Nov. 20, 1:38 PM
- Optical networking hardware vendors and their component suppliers are turning in a good day. The gains come a day after component vendor Oplink announced it's being acquired by Koch Industries for $445M, and will be managed by connector maker Molex (a Koch subsidiary).
- RBC thinks Koch's entrance into the slumping component industry could trigger further consolidation. "Current fab utilization rates remain low ... with optical component vendors unable to charge a premium for their innovation. Gross margins are currently weighed by competitive pressures with optical component makers willing to cut pricing to account for high fixed costs."
- The firm believes Finisar (FNSR +1%) could be a buyer, and JDS Uniphase (JDSU +1.5%) and Oclaro (OCLR +7.1%) sellers. JDS, set to spin off its component unit, is facing activist pressure to put the business on sale.
- Meanwhile, Ciena (CIEN +2.8%) announced this morning it's partnering with Avaya to offer an enterprise solution that pairs its optical networking and integrated optical/Ethernet gear with Avaya's Ethernet switches. Like peers, Ciena is trying to lower its dependence on pressured carrier capex budgets.
- Other gainers: AFOP +3.7%. NPTN +3.3%. ADTN +2.7%. INFN +1.9%.
Wed, Nov. 5, 3:52 PM
- Oclaro (NASDAQ:OCLR) is guiding for FQ2 revenue of $80M-$88M, below a $90.8M consensus. However, like many peers and customers, the optical component vendors has priced in a lot of bad news in recent months.
- In addition, consensus might not fully account for the recent sale of Oclaro's industrial/consumer product unit to Japan's Ushio. The unit had FQ1 revenue of $7.5M, and produced $2M in FQ2 revenue prior to the closing of its sale on Oct. 27.
- Meanwhile, gross margin rose to 16.5% in FQ1 from 14.1% in FQ1 and 12.4% a year ago. FQ2 GM guidance is at 13%-17%.
- FQ1 results, PR
Tue, Nov. 4, 4:28 PM
Mon, Nov. 3, 5:35 PM
- ADEP, AMRS, ATVI, AWAY, AXLL, BIO, BIOL, BIRT, CALD, CBSO, CDXS, CERS, CHUY, CKEC, COHR, CORT, COUP, CRTO, CSU, DOX, DVN, ENPH, EXAM, EXEL, FANG, FEYE, FOXA, FRGI, GAS, GHDX, HR, ITRI, IVR, JAZZ, JIVE, JKHY, JMBA, KAR, MITT, MOSY, MPO, MYGN, NP, NRP, NSTG, NYMT, OAS, OCLR, OKE, OKS, PACD, PAYC, PBPB, PCYC, PEGA, PHH, PRI, PXD, PZZA, REGI, REXX, RLOC, RNR, RP, SBAC, SN, SPA, SQNM, TMH, TNET, TRIP, TTGT, TWO, TWOU, TX, UIL, WPX, XEC, XNPT, ZAGG, ZU
Mon, Oct. 6, 11:30 AM
- EZchip (EZCH -12.5%), a top supplier of network processors for edge/access routers, now expects Q3 revenue of $19M, below prior guidance of $22M and a $22.6M consensus.
- CEO Eli Fruchter: "We have seen weakness in orders as well as inventory adjustments across most of our key customers that are serving the carrier networking equipment space. We believe this is a temporary slowdown, caused primarily by a weaker carrier spending environment that the market is currently going through." Like others, he's optimistic growth will soon pick up.
- Fruchter's remarks echo those from Cisco (EZchip's top customer), Juniper, Ciena, Finisar, JDS Uniphase, and several other firms. Soft North American wireline capex (led by AT&T) has especially been taking a toll on the industry.
- Several telecom equipment and component/chip suppliers are following EZchip lower. CIEN -2.8%. CAVM -2.8%. OCLR -2.7%. ZHNE -2.7%. CYNI -3.1%. AFOP -2.1%. NPTN -2.4%. OPLK -1.7%.
Mon, Sep. 22, 1:45 PM
- High-beta tech stocks are selling off hard as the Nasdaq registers a 1.3% decline. The selling is broad-based, with Internet, solar, and enterprise tech stocks all well-represented among the ranks of major decliners.
- Major Internet decliners: BIDU -4.7%. ANGI -7%. YELP -5.9%. AWAY -5.1%. CHGG -5.9%. GRUB -5.8%. P -5.2%. Z -4.6%. TRLA -4.8%. ATHM -7.9%. BITA -7%. DANG -5.9%. WB -5.3%.
- Solar: FSLR -4.5%. SCTY -7.5%. SPWR -4.5%. DQ -7.6%. JKS -5.5%. ASTI -6.3%. ENPH -5.5%. CSIQ -4.8%.
- Enterprise: WDAY -5.4%. GIMO -6.7%. VMEM -7.7%. IMPV -4.8%. MKTO -4.9%. SPRT -5.1%. CSOD -5.5%.
- Others: HIMX -4.6%. SIGM -5.6%. WATT -9.7%. CYNI -5.3%. ADNC -5.7%. PXLW -5%. SWIR -5.8%. MITK -6%. OCLR -6%.
Tue, Sep. 2, 1:45 PM
- Ahead of Thursday's FQ1 report, Jefferies' James Kisner has downgraded Finisar (FNSR -6.2%) to Hold, and cut his target by $6 to $19.
- Kisner cites weak pricing for both datacom and telecom optical components, weaker-than-expected 100G datacom share, a Chinese inventory correction, Cisco/Huawei vertical integration risk (previous), and looming price pressure/share loss to startups and possibly Intel.
- Fellow component vendors JDS Uniphase (JDSU -2.2%), Oclaro (OCLR -1.7%), and Alliance Fiber (AFOP -2.3%) are also off, as is equipment vendor Ciena (CIEN -2.1%). JDS and Alliance were among the names that followed Finisar lower last Wednesday, following cautious notes from MKM and RBC.
- Jefferies raised alarm bells about AT&T's wireline capex in June, before Juniper and JDS offered soft guidance blamed on light North American capex.
- A lot has been priced in: Finisar now only trades for 9x FY16E (ends April '16) EPS exc. net cash.
Thu, Aug. 21, 3:59 PM
- Optical component vendors JDS Uniphase (JDSU +4.3%), Finisar (FNSR +3.4%), Oplink (OPLK +3.2%), Oclaro (OCLR +3.6%), and Alliance Fiber (AFOP +2.5%) have all rallied on a quiet day of trading, and so has client Ciena (CIEN +2.7%). No news has hit the wires to explain the gains.
- JDS, Oclaro, and Alliance Fiber all sold off in recent weeks (I, II, III) after providing disappointing guidance in their calendar Q2 reports. JDS (like Juniper following its Q2 report) observed soft North American wireline capex is pressuring industry sales.
Wed, Aug. 13, 7:02 PM
- Though Oclaro's (NASDAQ:OCLR) FQ4 revenue was roughly in-line, it's guiding for FQ1 revenue of $83M-$91M, below a $99.3M consensus.
- The optical component vendor says a "decline in 40G and lower-speed legacy products" is expected to hurt FQ1 sales. JDS Uniphase offered weak guidance yesterday (soft carrier spending was blamed), and Cisco reported an 11% Y/Y drop in service provider product orders this afternoon.
- Gross margin rose to 14.1% in FQ4 from 12.3% in FQ3 and 7.3% a year ago. That helped EPS beat estimates, as did cost cuts: GAAP R&D spend -15% Y/Y to $15M, SG&A -23% to $14M (compares with 0.5% revenue growth).
- The $18.5M sale of Oclaro's industrial/consumer product unit to Japan's Ushio Opto is expected to close during FQ2.
- FQ4 results, PR
Wed, Aug. 13, 5:34 PM
Tue, Aug. 12, 5:35 PM
Thu, Jun. 12, 4:19 PM
- Finisar (FNSR) expects FQ1 revenue of $320M-$335M, above a $317M consensus. But EPS guidance of $0.30-$0.34 is below a $0.41 consensus.
- Gross margin pressure is responsible for both the guidance and FQ4's EPS miss. FQ4 GM was 34.2%, +200 bps Y/Y but -300 bps Q/Q and below guidance of 35.5%. GM is expected to fall to 32% in FQ1.
- Finisar blames the FQ4 margin weakness on telecom product price cuts and the impact of recently-acquired u2t Photonics, whose products carry a lower GM.
- Opex +4.3% Y/Y in FQ4 to $65.9M, well below rev. growth of 25.7%. A 39.1% Y/Y increase in datacom product sales (boosted by the investments of Web/cloud service providers) offset a 2.5% drop in telecom sales, and helped drive the revenue beat.
- JDS Uniphase (JDSU) is following Finisar lower. Other optical component firms that could be hit: OPLK, OCLR, FN, NPTN.
- FQ4 results, PR
Wed, May. 7, 12:48 PM
Tue, May. 6, 6:11 PM
- Trimble (TRMB) expects Q2 revenue of $605M-$630M and EPS of $0.38-$0.42, below a consensus of $645.8M and $0.45. The company blames its Q1 miss on North American agriculture weakness. Shares -8.3% AH. (Q1 results, PR)
- Oclaro (OCLR) expects FQ4 revenue of $90M-$100M, below a $103.8M consensus. Gross margin is expected to be in a range of 12%-16% vs. an FQ3 level of 12%, which missed guidance of 13%-17% - Oclaro blames "product rationalization and ramp decisions made during the quarter and issues related to management of [its] contract manufacturers." Shares -12.8% AH. (FQ3 results, PR)
- JIVE Software expects Q2 revenue of $41.5M-$42.5M and EPS of -$0.10 to $0.12 vs. a consensus of $41.9M and -$0.11. Full-year guidance is for revenue of $171M-$176M and EPS of -$0.38 to -$0.45 vs. a consensus of $172.6M and -$0.44. Full-year free cash flow is expected to be in a range of -$15M to -$20M. Shares +5.4% AH, aided by low expectations. (Q1 results, PR)
Tue, May. 6, 5:40 PM
Tue, May. 6, 4:45 PM
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