Acacia Communications, Inc. ACIA, a supplier of optical interconnect products, has seen its stock fall about 35 percent from the $40 level over the past six weeks.
The Analyst
Morgan Stanley analyst Meta Marshall upgraded shares of Acacia Communications from Underweight to Equal-Weight with a $30 price target.
With his price target having realized, the analyst said he's closing out his Underperform position despite the possibility of more downside if there is no resolution to the ZTE ban imposed by the U.S. Commerce Department; ZTE reportedly fetched the company 30 percent of its sales in 2017.
The Thesis
The moves in Acacia in the coming months will be much more news-based, surrounding the U.S.-China trade discussions rather than on fundamentals, Marshall said in a Friday note.
Marshall said he wasn't prone to be positive on the company until getting closer to the 400ZR release, scheduled for late 2019. Even if the ZTE issue is positively resolved, the analyst said he would be as cautious as he was previously.
If the news flow around ZTE continues to be poor, Morgan Stanley expects shares to trade between its base and bear case; His bear case is $10 per share.
Even when demand returns, Marshall said it's not as optimistic around the attractiveness of China and datacomm systems markets. The roadmap is solid, however, making for a more attractive late 2019 or early 2020.
Price Action
Shares of Acacia were trading 1 percent higher Friday at $28.21.
Related Links:
Optical Stocks Under Pressure After US Bans Sales To ZTE
Acacia Communications Investors 'Stuck With A Bad Hand,' Says Morgan Stanley
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