Rosenblatt Securities: Buy Acacia After A 'Steady Dose Of Bad News'

After a "steady dose of bad news" over the past year, now may be the time for investors to consider Acacia Communications, Inc. ACIA, according to Rosenblatt Securities.

The Analyst

Rosenblatt Securities' Ryan Koontz initiated coverage of Acacia Communications' stock with a Buy rating and $42 price target.

The Thesis

Acacia's past year has been dominated by negative catalysts, Koontz said in the initiation note. They include:

• General market headwinds.
• Product delivery slips.
• "Wild" fluctuations in demand from China.
• "Lumpiness" in the hyperscale market.
• The recent ZTE export ban and ongoing uncertainty.

Acacia' earnings power, which was made clear to investors following its 2016 initial public offering, has now been "crippled," the analyst said. 

Over the past year, the company has been active in building key customer relationships and emphasizing that its technology is the "building block" that connects customers to clouds with no substitute in existence, Koontz said. 

Acacia's competitors are merely in-house DSP designs at optical systems suppliers, who have so far shown "mixed success" in sustaining DSP innovation cycles, he said. 

Acacia's CFP2-DCO product has reached full production and is already showing "very strong" demand trends across all markets, Koontz said. The company's new Pico DSP chip is able to elevate its customers into high-performance coherent transport, but remains in the sampling stage of production among a few customers, the analyst said. 

Acacia should see a "strong rebound" in China by the first quarter of 2019, but this could come as soon as the third quarter of 2018 if a settlement is reached on the ZTE export ban.

Price Action

Shares of Acacia Communications were trading lower by 1.3 percent Tuesday afternoon.

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