Earlier this month on January 19, optical component player, Oclaro, pleasantly surprised investors with an announcement that results for its second fiscal quarter ended in December would come in at the high end of expected Street estimates at the time.
The company announced preliminary revenues of between $153.5-154 million and operating income of $36 million (non-GAAP). The Street was expecting $150.5 million and OI of $24 million (mid-point). The company said gross margins (GMS) would be in the 39.5% range versus prior guidance of between 33% and 36%.
Shares of Oclaro popped 17% on the day and closed at $9.48 per share. Yesterday, in the midst of the President Trump immigration ban-related tech beatdown, shares of Oclaro ended the day at $9.68.
Oclaro is not the only optical component player that has positively preannounced its results for the December quarter. The week prior, Applied Optoelectronics (NASDAQ:AAOI), had also said its own results would come in ahead of expectations on both the top and bottom lines.
As telcos/providers, both here at home and overseas, see ever-increasing demand for data from consumers, they are spending more to upgrade their networks in order to meet/satisfy that increasing demand, leading to better-than-expected results for the entire optical food chain.
Shares of Oclaro have enjoyed a very strong six months, up 75% since hitting a low of $5.54 per share in very early August. In the last year, shares have traded in a range of $3.60 and $10 and change per share.
For the December quarter, current Wall Street estimates are for earnings of $0.18 per share on revenues of $153.5 million. For the current quarter ending in March, consensus is for earnings of $0.14 per share on revenues of $146 million.
Besides guidance, analysts and investors on both sides (good guys and darksiders), will be laser-focused on what the company says about demand in the 100G-plus optical upgrade cycle from telcos, internet service providers here and in China.
My take is that demand for 100G plus data speeds is rapidly increasing not just here at home but overseas as well as more and more consumers/users get comfortable with using their internet-connected devices to access the internet, whether for entertainment/information or a combination of the two.
Most readers will know that I have been talking about China slowdown fears being way over-cooked here and Alibaba's (NYSE:BABA) results have already shown that I am more than likely on the right track with my big picture thesis on Chinese investments in 2017.
Oclaro shares are indicated to move $1.45 per share, in either direction, post its earnings report tonight after the closing bell. As of January 13, there were 17.9 million shares of Oclaro held short which account for almost 12% of its float and if results for the quarter exceed investor and Street expectations, the resulting squeeze could get pretty interesting.
My fair value for Oclaro is in the $13 per share range based on current Street estimates for FY 2017.
Words to the wise.
As of this writing, I am long Oclaro going into the earnings report tonight.
Disclosure: I am/we are long OCLR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: call options