Raymond James Downgrades Optical Name Finisar On Near-Term Pressures

Finisar Corporation FNSR, a manufacturer of optical communication products, is likely to be stymied by near-term headwinds, according to Raymond James.

The Analyst

Analyst Simon Leopold downgraded Finisar from Outperform to Market Perform.

The Thesis

The timing of production from the Sherman, Texas plant for 3-D sensing poses the biggest near-term risk for Finisar, Leopold said in the downgrade note. (See the analyst's track record here.)

Citing industry contacts, the analyst said Finisar will likely miss much of the upcoming Apple Inc. AAPL cycle.

Ongoing pressure in the ASPs of data center optics present a challenge, Leopold said. Web scale pricing has likely declined over 20 percent this year, he said. 

A competitive threat is arising from competitors such as Applied Optoelectronics Inc AAOI pursuing certifications at OEMs, Leopold said. 

The company's exposure to China has declined into the low teens, the analyst said. 

"We remain optimistic regarding the ROADM/WSS market, but believe Finisar will lose market share."

Raymond James expects gross margins to recover from the last quarter's low, but forecast for the recovery to be gradual.

Finisar is likely to meet July quarter estimates, Leopold said, although he sees downside risk to its EPS forecast.

The analyst said he sees two distinct tailwinds: the prospect of improved gross margin and participation in the 3-D market.

The Price Action

Finisar shares have lost about 3.7 percent year-to-date.

Related Links:

Optical Stocks In Focus Following Apple's Deal With Finisar

5 Reasons Finisar Is An Analyst's Top Pick For 2018