Finisar Drops After Goldman Sachs Downgrade On 'Cyclical Risks,' Company Pressures

Finisar Corporation FNSR shares fell Tuesday as Goldman Sachs downgraded the optical communication components manufacturer, expressing a skeptical 2018 outlook for the company. 

The Analyst

Analyst Doug Clark downgraded Finisar from Neutral to Sell and lowered the price target from $19 to $16.

The Thesis

While Clark projects that the SMID-cap CommTech market is set to recover in 2018, “a combination of cyclical risks and company-specific product exposures that could pressure revenues and margins” necessitate the downgrade, he said. (See the analyst's track record here.) 

Inventory levels across several optical component companies grew 20 percent year-over-year in the third quarter., Clark said. "Rising capacity and weaker overall demand” in the optical component market have led to component oversupply, putting pressure on revenues and margins, he said. 

While Apple Inc. AAPL’s announcement of its intention to invest $390 million in Finisar to support 3-D sensing applications represents a “clear positive," several risks are associated with this investment, including the fact that Apple has no contractual obligation with Finisar, Clark said. An additional concern the analyst named: Finisar’s ability to reach its full production potential by the time the new iPhone model is launched.

Price Action

Finisar was trading down 6.38 percent at $21.29 at the time of publication Tuesday afternoon. 

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