Why Fabrinet's New AI Customer Could Bring in Over $100M Business: An Analyst's Perspective

Needham increased its price target on Fabrinet FN from $120 to $150 with a Buy rating.

The analyst notes that its visit to the management was substantially more confident in the outlook. 

It says that the estimates appear to fully anticipate a variety of macro and market-specific pressures, offset by new customer wins combined with shipments of high-speed components designed into the AI fabric. 

In May, the company released its Q3 results and provided Q4 FY23 sales guidance of $630 - $650 million (consensus $670.68 million), adjusted EPS of $1.76-$1.83 (consensus $1.92).

It likely takes a few quarters for the pig in the Service Provider python to get digested, but the AI demand is offsetting the near-term, and more importantly, it is expected to stay strong once the more conventional business starts to rebound. 

Fabrinet started working with its new AI customer in its Israel Prototyping facility just under two years ago. The project moved to Fabrinet's Pinehurst facility and is ramping sharply and is estimated to be over $100 million business.

It's offsetting the pressures on the Telecom business and supporting Fabrinet's double-digit growth.

Thus, the analyst anticipates substantially more robust growth in CY24 than the Street.

Price Action: FN Shares are up 13.70% at $128.50 on the last check Monday.