UBS Highlights Two Buys, One Sell In The Optics Sector

Analysts at Loop Capital Markets initiated coverage of the optics sector on Tuesday. Now analysts at UBS have followed suit, although not with a similar industrywide bullish stance.

The Analyst

UBS' Tejas Venkatesh initiated coverage of the following three stocks:

• Acacia Communications, Inc. ACIA: Buy rating, $50 price target.
• Oclaro Inc OCLR: Sell rating, $5.50 price target.
• Lumentum Holdings Inc LITE: Buy rating, $57 price target.

Acacia: Innovation Leader

• The Street is underestimating Acacia's revenue potential for its new CFP2-DCO product, Venkatesh said. 
• Revenue growth in 2018 will likely be 16 percent versus the consensus estimate of 11 percent, the analyst said. 
• Acacia is one of UBS' preferred plays on optical companies with the best non-China growth potential.

Oclaro: 'Gap Year'

• Oclara will likely see gross margin and growth pressures in 2018 due to technology transitions in the intra-data center market, according to UBS. 
• Oclara's growth over the past two years was a result from being first to market with key 100g products and will likely slow, Venkatesh said.
• Acacia has better exposure to the growing inter-data center market than Oclaro, he said. 

Lumentum: 'Flag Bearer' For 3-D Sensing

• Lumentum's 25-percent decline in share prices over the past three months reflects risks to 2018, but undervalues the company's opportunity in 2019, Venkatesh said. 
• Lumentum's competition lacks the necessary capacity to satisfy more than 30 percent of 3-D sensing demand in 2019, according to UBS. 
• Aside from the iPhone, Android makers are moving to include 3-D sensing technologies which adds another potential catalyst to Lumentum's story, he said. 

Related Links:

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