I would ask you to pardon the pun, but it is true, the optical stocks have been lighting it up lately. Ok, maybe not every bulb is firing at maximum potential, but there are plenty of names that have said that things are good and should remain that way going forward.
Allow me to shed some light on a few names that have done well recently and then a few names that are reporting soon.
Applied Optoelectronics (NASDAQ:AAOI)
I have to start off with the stock that is up about 100% YTD. So at about $46 the stock is up 96%, but I saw it over 100% the other day. AAOI is s Zacks Rank #1 (Strong Buy) and has been running hard all year.
A day after a big conference for several fiber stocks, AAOI raised guidance. They moved the expected range to $0.77-0.82 from $0.46-0.51 when Wall Street was looking for $0.50. Revenue was also guided higher $84.5-84.8M while the prior range was $75-79M vs. $77.5M consensus. Margins were guided higher as well.
This is what started the run for several names. The run was then extended when the company beat the consensus of $0.79 by $0.05 and revenue was also slightly ahead of expectations. On top of that, the company guided higher again as they see the next quarter producing results of $0.80-0.88 compared to the $0.40 consensus. That was a big reason the stock rallied nearly 24% in the session following the release.
Acacia Communications (NASDAQ:ACIA)
One name that gets a lot of ink that didn't really perform is ACIA. The stock is presently a Zacks Rank #3 (Hold) as estimates are a little mixed following the third straight beat of the Zacks Consensus Estimate on February 23.
The beat was pretty big, with the company earnings $1.55 per share compared to the $0.74 Zacks Consensus Estimate. That $0.81 beat translated into a 109% positive earnings surprise.
ACIA issued guidance that was below Wall Street expectations, putting the EPS range at between $0.63 and $0.70 when the consensus was $0.78. Revenues also came in well below the consensus of $137M when they gave the range of $108-114M.
Lumpy demand was the reason for the lower guidance. The company is speaking again on March 1 at the Morgan Stanley TMT Conference.
Infinera Corporation (NASDAQ:INFN)
INFN is a stock that I have tracked for some time. The stock traded higher for a few weeks heading into the most recent report and then they beat the Zacks Consensus by a penny.
Guidance on the call was in line for revenue but came in below consensus on the bottom line.
Given the small number of clients, it appears that Wall Street was braced for poor results. Analysts believe that estimates could have bottomed out and as a result, the stock rallied by more than 30% in the session following the report.
The weak guidance caused estimates to slide a bit and the stock is now a Zacks Rank #4 (Sell).
One of the fiber plays that has yet to report is CIEN. The stock is a Zacks Rank #3 (Hold) and is expected to report on March 8 before the market opens.
I see the Wall Street expectations at $632M on top and $0.29 on bottom.
The most recent quarter was a miss on top and on bottom, the first miss in about 2 years. Investors gave the company a pass as the stock rallied for more than 14% following the report. In the same quarter last year, a small beat resulted in the stock falling 16.5% in the session following the report.
Investors are pointing to the unlimited data plan being offered by Verizon (NYSE:VZ) as a potential reason for the company to raise guidance for the year.
This stock was a Zacks Rank #4 (Sell) until just a few days ago. It is now a Zacks Rank #3 (Hold) as the 60-day life span of an estimate revision has eclipsed. Most stocks are at a Zacks Rank #3 (Hold).
The company had not confirmed their earnings report as of yet, so it could come as soon as March 1. A year ago, the company reported on the first day of March (which happens to be the birthday of the Great State of Ohio), and beat the Zacks Consensus Estimate by $0.03. The stock rallied by 14% in the following session, but since then the stock has fallen following earnings reports.
Given the size of this stock, a huge move (either way) could be in store for investors when the next report does come. Along with the 14% positive move mentioned already, NPTN traded lower by more than 13% following the March quarter report and 22% following the September report.
Those big moves mean an options straddle might be a good bet for this stock. I am a little biased on this one as I believe a solid report is coming. I might be alone in that idea though, as 11% of the float is sold short. A big beat and this one could easily squeeze past $13 or even $14.
NeoPhotonics Corporation Price and Consensus
Lumentum Holdings (NASDAQ:LITE)
My last stock to look at is LITE and it is a Zacks Rank #2 (Buy). The company beat earnings in early February and issued guidance that was in line with expectations. It was the 6th straight beat for the company and I am seeing revenue growth accelerating, which is a good signal going forward.
The company is speaking again at a March 14 conference in China and then again a week later at the Optical Fiber Conference.
Following the recent earnings report, Stifel reiterated their buy rating and increased their target price on the stock to $57.50 from $45.
LITE trades at a premium to the group at 28x forward earnings compared to a 17x industry average. The price-to-book multiple of 5.6x is higher than the industry average of 4.1x. The price-sales multiple of 3x is well below the 6.5x industry average. This basically tells me that on conservative measures, this stock is priced somewhat aggressively, while the most aggressive measure has this stock priced conservatively. That is a long way of saying a mixed valuation.
Lumentum Holdings Inc. Price and Consensus