Seeking Alpha: Finisar Still Looking For Leverage

"Picks and shovels" is a popular trope in investing and sometimes there is logic to it - instead of trying to pick winners and losers in industries like oil/gas exploration and mining, sometimes it makes more sense to invest in the service and equipment providers. The details really do matter, though, and going the picks-and-shovels route doesn't serve investors as well when there are plenty of pick-and-shovel vendors and the buyers can play them off each other for better pricing.

Finisar (NASDAQ:FNSR) continues to be a tough case to evaluate within the networking universe. I thought the shares looked washed out back in September of 2014 and the shares have risen almost 20% since then, matching fellow components supplier JDSU (NASDAQ:JDSU) and broadly tracking customers like Ciena (NYSE:CIEN) and Cisco (NASDAQ:CSCO). On the other hand, the company's operating performance hasn't been stellar and particularly so at the margin line.

I am unconvinced that Finisar is a stock that readers should consider as a long-term holding, but I do believe it has more positive attributes as a shorter-term play. Ciena and Cisco should see 100G metro orders pick up next year as a Verizon deployment picks up, and a better CFP2 module and capacity constraints at rival Oclaro (NASDAQ:OCLR) should help the datacom business as Web 2.0 deployments pick up. A recovery in margins could run the shares into the high $20's (or higher), but I think investors should go into this thinking "whirlwind romance" and a long-term engagement.

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Finisar Still Looking For Leverage

Seeking Alpha: Finisar Has Room To Run On Data Center And Telecom Upgrades

Optical components supplier Finisar (FNSR) has a lot going for it. The company has leading share in the $6 billion-plus optical components market and good technology in attractive markets like 10G/40G/100G transceivers and transponders, tunable XFP, and WSS/ROADM. What's more, with a significant data center switch upgrade cycle and ride-along potential in telecom with clients like Cisco (CSCO) and Huawei, growth over the next few years ought to be good.

The real question for Finisar is whether a reader is comfortable buying a stock that is highly unlikely to be a good long-term holding. Consistent revenue and FCF growth in this market has been all but impossible, and threats like silicon photonics loom on the horizon. I believe that Finisar shares still look pretty interesting for the next year or two, but I would be careful not to push my luck and hold them deep into the cycle.

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Finisar Has Room To Run On Data Center And Telecom Upgrades

Investopedia: Hard-To-Value Finisar Could Be In For Better Days

It can be dangerous to have a good feeling about a company's stock, but not be able to back it up with strong quantitative data. And yet, that broadly describes most turnaround situations, as the timing and magnitude of earnings and cash flow recoveries are so hard to model accurately. With that in mind, I think Finisar (Nasdaq:FNSR) could be in for better days as upgrade cycles in the data center and telecom markets take revenue and earnings higher.

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http://www.investopedia.com/articles/active-trading/12/hard-to-value-finisar-could-be-in-for-better-days.asp

Investopedia: Ciena - Performance From Margins Or Marginal Performance?

The communications and networking infrastructure space is sort of like a primetime medical drama. The patients come in riddled with holes or coughing up blood, they stabilize, they seem to get better, there's a sudden turn for the worse (usually about midway through), and then about twenty minutes of artificial tension as the outcome hangs in the balance.

Unfortunately for shareholders, there's nothing artificial (nor especially entertaining) about the travails and challenges for companies like Alcatel-Lucent (NYSE:ALU), Adtran (Nasdaq:ADTN), Infinera (Nasdaq:INFN), Finisar (Nasdaq:FNSR) or Ciena (Nasdaq:CIEN) these days. While the future of bandwidth demand has never looked brighter and customers are queuing up for new technologies in the 40G/100G category, inventory corrections, unstable order patterns and rampant competition have rippled through the sector for a while now.

The link below will take you to the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Ciena---Performance-From-Margins-Or-Marginal-Performance-CIEN-ALU-INFN-FNSR-JDSU-CSCO-JNPR0905.aspx

Investopedia: Severe Static For Telco Providers

When a sector sits in the top 5% of sector performance, it is often a safe bet that momentum investors have crowded into the stocks, and expectations are running hot. Unfortunately, the very nature of the momentum game means that the stocks can get rocked at the first sight of cracks in the growth story.
Such is the case for companies in the telecomm equipment space these days.

Investors had been piling into stocks like JDS Uniphase (Nasdaq:JDSU), Finisar (Nasdaq:FNSR) and Ciena (Nasdaq:CIEN) on the idea that the spread of smartphones and tablets is going to strain the networks of service providers even further and lead to significant capacity upgrades. To be fair, growth had been looking good off the bottoms of the recession and demand in China has been strong.

Unfortunately for investors, it looks like the sector has hit a pothole. Although JDSU gave pretty encouraging guidance not all that long ago, Finisar had a much less rosy outlook. Not only did Finisar cite weaker growth in China as a proximate cause, the company indicated it was an industry-wide phenomenon. Couple that with disappointing guidance from Ciena, and the stage was set for a significant pullback.

Please continue to the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Severe-Static-For-Telco-Suppliers-JDSU-FNSR-CIEN-GLW-OPXT0311.aspx

Investopedia: JDS Uniphase Comes Through Loud And Clear

Tech investors have not been too forgiving to companies through this earnings cycle, but JDS Uniphase (Nasdaq:JDSU) largely took matters into its own hands with a stellar result. While there is still plenty of room to debate JDSU's long-term future, the near-term outlook for optoelectronics seems to be pretty strong. 

A Blowout in the Fiscal Second Quarter
JDS Uniphase delivered everything investors wanted in its fiscal second quarter and then some. Revenue jumped 16% from the first quarter (and 39% from the year-ago level) and handily smote even the high estimate on the Street. Revenue growth was definitely fueled by test and measurement business (up 27% sequentially), but the optical products business was no slouch at 14% sequential growth. While the Advanced Optical Technologies unit saw a 10% sequential revenue decline, analysts did not expect a lot from this business.

As revenue jumped ahead of plan, the company was able to leverage better profitability. Gross margin increased 140 basis points on a sequential basis, while the operating margin expanded 450 basis points to over 15%. (For more, see The Bottom Line On Margins.)

The Road Ahead
If management is right, this was not a one-quarter recovery in JDS Uniphase's business. The company guided for a level of March quarter revenue that looks to be about 7% higher than where estimates had been, and while there could be some sequential pullback in profitability, it would seem that numbers should be going up overall.


Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/JDS-Uniphase-Comes-Through-Loud-And-Clear-JDSU-FNSR-OCLR-CIEN-DHR0207.aspx