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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.
Wed, Apr. 30, 5:09 PM
- In addition to missing FQ3 estimates, JDS Uniphase (JDSU -6.9% AH) is guiding for FQ4 revenue of $425M-$445M and EPS of $0.10-$0.14, below a consensus of $459M and $0.17.
- The company blames its FQ3 miss on "later-than-expected carrier orders." Optical communications product sales grew 7.1% Y/Y, slower than FQ2's 12.1% clip. Network and service enablement (test equipment) sales fell 1.1% after declining 0.2% in FQ2.
- Peer Oplink (OPLK -6.7% AH) also posted an FQ3 miss, while adding it's seeing "a bit of softness" in its optical business. FQ4 guidance is for revenue of $48M-$52M and EPS of $0.05-$0.11, below a consensus of $53.3M and $0.17.
- Finisar (FNSR) is down 1.1% AH. Others that might slip: OCLR, AFOP, NPTN, FN.
Wed, Apr. 2, 9:52 AM
- Alliance Fiber (AFOP +13.8%) expects to report Q1 revenue of $24.8M, +104% Y/Y and soundly above prior guidance of $22.5M (it's also the consensus).
- The announcement comes less than two months after shares tumbled due to a Q4 miss. Full Q1 results arrive on April 24.
- Needham's bullish March 25 coverage launch was well-timed. In general, Street sentiment towards optical component and networking hardware vendors has been improving, thanks in part to strong numbers from Ciena and Infinera.
- Optical component peers are trading moderately higher: FNSR +2.3%. JDSU +1.3%. NPTN +1.6%. OCLR +2.6%.
Thu, Mar. 20, 10:48 AM
- Stifel's Sanjiv Wadhwani has upgraded Infinera (INFN +5.5%) to Buy. Following meetings at last week's OFC 2014 optical networking industry conference, Wadhwani believes demand for 100G systems "is now on a much more global scale versus a year ago," with activity having picked up in Europe and parts of Asia.
- Ciena (CIEN +3.8%), also a major player in the 100G optical transport space, is following Infinera higher. Both companies (as well as several peers) rallied last week after Goldman upgraded Infinera and Calix, while estimating 100G systems have a 15% gross margin edge relative to 10G systems.
- Component makers Finisar (FNSR +2.3%), Oclaro (OCLR +2.6%), and Alliance Fiber (AFOP +3.8%), each of which also have 100G exposure, are rallying as well.
Tue, Feb. 4, 5:39 PM
Tue, Feb. 4, 4:53 PM
- Though Oclaro (OCLR) slightly missed FQ2 EPS estimates (while beating on revenue), the company posted a gross margin of 17%, up from 13% in FQ1 and 15% a year ago, and above guidance of 10%-14%. The recent sale of two businesses to II-VI may have helped out.
- Oclaro expects FQ3 revenue of $93M-$103M, in-line with a $97.3M consensus. Gross margin for the seasonally weak quarter is expected to be in a range of 13%-17%, and adjusted EBITDA in a range of -$13M to -$9M (compares with -$10.7M in FQ2).
- Last week, rival JDS Uniphase provided in-line guidance to the approval of investors on edge over near-term carrier capex trends.
- R&D spend fell 9% Y/Y to $16.4M, and SG&A spend 11% to $18.6M.
- CC at 5PM ET. FQ2 results, PR.
Tue, Feb. 4, 4:13 PM
Tue, Feb. 4, 12:10 AM
Mon, Feb. 3, 5:35 PM
Fri, Jan. 31, 1:56 PM
- With help from an upgrade to Outperform from William Blair, JDS Uniphase (JDSU +6.9%) is shooting higher following its FQ2 beat, which was accompanied by strong FQ3 guidance and news of two acquisitions.
- Optical component peers Finisar (FNSR +4.5%), Oclaro (OCLR +5.7%), and NeoPhotonics (NPTN +6.5%) are following JDS higher. The fact JDS' optical communications product sales rose 12.1% Y/Y (up from 8.1% in FQ1) is likely going over well.
- Blair's Dmitry Netis is upbeat about JDS' improving carrier test equipment/software business: He expects it will return to positive growth in FQ3 after years of declines, grow 2.5% in FY14 (ends in June), and grow 9% in FY15.
- MKM (Neutral, PT upped to $15 from $13) observes rising 100G optical component demand (previous) is giving JDS a lift; Finisar and NeoPhotonics also have solid 100G exposure.
- Barclays is pleased FQ3 revenue is expected to grow 6% excluding a gesture recognition business affected by Xbox One/Kinect seasonality, but nonetheless considers Finisar a better investment due to its "cleaner" datacom exposure.
- CC transcript
Dec. 20, 2013, 1:34 PM
- FBR's Scott Thompson has started coverage on Infinera (INFN +1.6%) with an Outperform and $12.50 PT. He expects the optical networking space to "experience stronger performance in 2014 versus 2013" thanks to several catalysts he expects will "one of the strongest optical cycles the industry has seen in more than two decades."
- Thompson also reiterates an argument he made in a Dec. 4 note on Ciena (CIEN +2.3%): That telecom networks are migrating towards architectures that offer greater optical layer intelligence/flexibility, and in doing so require less money to be spent on switches/routers.
- Thompson thinks this architecture shift is partly responsible for the recent weakness seen in Cisco's (CSCO +0.6%) service provider sales.
- As for Infinera, a major player in the 100G optical transmission space, Thompson declares the company to have the strongest exposure to the optical segments where "the shift will be the most pronounced."
- In addition to Infinera and Ciena, a couple other optical networking hardware vendors are doing well on a good day for tech, as are some component suppliers. CYNI +4.3%. AFOP +5.9%. OPLK +2.8%. OCLR +2.4%. ADTN +1.9%.
Nov. 14, 2013, 10:13 AM
- The list of enterprise hardware/software, telecom equipment, and component/chip suppliers selling off (previous) due to Cisco's poor guidance and order data now includes Oracle (ORCL -2.4%), EZchip (EZCH -6.1%), Riverbed (RVBD -6%, shot higher yesterday on M&A hopes), NeoPhotonics (NPTN -6.6%), Ixia (XXIA -4.7%), Oclaro (OCLR -4%), Procera (PKT -2.3%), and Alliance Fiber (AFOP -3.8%).
- Cisco's weak service provider (-13% Y/Y) and emerging markets (-12%) orders are worrying investors in peers/suppliers, particularly given some peers (I, II) have also reported of soft carrier and/or EM demand. John Chambers' admission the NSA spying scandal has affected sales in China (orders -18%) also isn't going over well.
- However, many on the sell-side argue a big portion of Cisco's problems are tied to company-specific product issues.
- H-P (HPQ -5.6%), which has plenty of Chinese exposure, has added considerably to yesterday's AH losses, and so have Ciena (CIEN -5.3%) and Finisar (FNSR -10%). H-P's FQ4 report is due on Nov. 26, and Ciena's FQ4 report arrives on Dec. 12.
Nov. 7, 2013, 5:13 PM
- AVG expects Q4 revenue of $93M-$97M and EPS of $0.37-$0.42, below a consensus of $481M and $2.30. Shares -13.6% AH. (Q3 results, PR)
- Oclaro (OCLR) expects FQ2 revenue of $92M-$102M; that range excludes $7M in revenue from the company's amplifier business, which was sold to II-VI. The consensus, which includes estimates taking amplifier sales into account, is at $112.4M. Shares +2% AH. (FQ1 results, PR)
- Echelon (ELON) expects Q4 revenue of $16.5M-$18.5M and EPS of -$0.07 to -$0.12, largely below a consensus of $20.6M and -$0.11. Shares -4.1% AH. (Q3 results, PR)
Nov. 7, 2013, 4:12 PM
Nov. 7, 2013, 12:10 AM
- ADES, ADUS, AIRM, AL, ALJ, ANAC, ARAY, AREX, ARNA, ATLS, ATW, AUQ, AVG, BCEI, BEBE, BIO, BNNY, BPZ, CFN, CLNE, CUBE, DAR, DIS, DMD, EAC,EBS, ECPG, ELON, ENOC, EZPW, FEYE, FF, FUEL, FXEN, GERN, GRPN, GXP, HTGC, IL, KRO, KTOS, LCI, LFVN, MCP, MDRX, MITK, MNST, MNTX, MSCC, NES,NFG, NKTR, NOG, NVDA, OCLR, OLED, PCLN, PEGA, PODD, RNDY, SF, SGMS, SLXP, SNTS, SQNM, SWIR, TSRO, TUMI, UBNT, UNXL, VVC, WIFI, WR, WTR, XNPT, XTEX, YRCW
Nov. 6, 2013, 5:35 PM
- ADES, ADUS, AIRM, AL, ALJ, ANAC, ARAY, AREX, ARNA, ATLS, ATW, AUQ, AVG, BCEI, BEBE, BIO, BNNY, BPZ, CFN, CLNE, CUBE, DAR, DIS, DMD, EAC,EBS, ECPG, ELON, ENOC, EZPW, FEYE, FF, FUEL, FXEN, GERN, GRPN, GXP, HTGC, IL, KRO, KTOS, LCI, LFVN, MCP, MDRX, MITK, MNST, MNTX, MSCC, NES,NFG, NKTR, NOG, NVDA, OCLR, OLED, PCLN, PEGA, PODD, RNDY, SF, SGMS, SLXP, SNTS, SQNM, SWIR, TSRO, TUMI, UBNT, UNXL, VVC, WIFI, WR, WTR, XNPT,XTEX, YRCW
Nov. 5, 2013, 11:33 AM
- Fabrinet (FN +11%) has made new 52-week highs after soundly beating FQ1 estimates. The optical component contract manufacturer's FQ2 guidance - revenue of $170M-$174M and EPS of $0.40-$0.42 vs. a consensus of $169M and $0.36 - also isn't hurting.
- Several optical component vendors are getting a lift from the numbers: FNSR +4.5%. JDSU +1.4%. OPLK +2%. OCLR +1%. NPTN +1.4%.
- On its CC (transcript), Fabrinet mentioned optical communications sales rose 12% Q/Q, with healthy demand for both telecom and datacom products, and that "the underlying fundamentals of [Fabrinet's] Optical business remain strong" thanks to improving end-market demand and rising sales of advanced components/modules.
- Strategy chief John Marchetti mentioned datacom sales growth is still outpacing telecom growth, but added telecom sales are starting to "really grow again," and that additional segment growth is expected in FQ2 even as the company maintains a cautious outlook thanks to past disappointments.
- Those comments are a breath of fresh air for optical component firms, given they come in the wake of disappointing guidance from JDS Uniphase and equipment vendors.
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