) saw a big tumble in its stock on October 24, a day after AT&T
reported earnings. Since that time, analysts have increased
estimates helping push FNSR to a Zacks Rank #1 (Strong Buy). It is
the Bull of the Day.
Lower CapEx Guidance from Ma Bell
Nearly the entire fiber optic industry had a dimmer switched
lowered on their stock prices on October 24. AT&T reported
earnings and after increasing CapEx spending in the 3rd quarter,
analysts questioned if that rate would continue.
Reports that the telecom giant would not spend as much sent its
smaller suppliers tumbling lower. Of course this needs to be put
into perspective, which is what analysts have done in recent weeks,
but investors might have missed.
Finisar makes optical subsystems and components for data
communication and telecommunication applications. The company's
optical subsystems primarily consist of transmitters, receivers,
transceivers, transponders, and active optical cables. Finisar was
founded in 1987 and is headquartered in Sunnyvale, California.
Can You Hear the Guidance Now?
It should be noted AT&T is not the only important teleco that
requires assistance from fiber optics companies like FNSR. Verizon
is also a major player and their CapEx guidance at the end of the
second quarter was very positive.
A simple search of the AT&T conference call transcript reveals
the truth of what was said versus how it was interpreted. The CFO
stated "we are not trying to limit CapEx spending by a standard
compared to last year."
He went on to say "I think we said in the past that we would expect
the CapEx for this year to be in $21 billion range and for '14 and
'15 to be in the $20 billion range and at this time we are not
adjusting that or changing that." So while CapEx may be shrinking,
it's not as much as you may have believed. It's also not so likely
that this means a 5% cut across the board and fiber could even see
an increase in CapEx.
FNSR Sees Estimates Moving Higher
Prior to guiding the July 2013 quarter higher, estimates were
already showing a positive trend line. The Zacks Consensus Estimate
called for $0.62 in May, and that bumped higher to $0.72 in June.
In August the company noted that they expected earnings to be
better than expected, causing the consensus to rise once again to
Following the most recent earnings report, estimates launched
higher again. First to $1.06 and they currently at $1.09. This is
the type of consistent growth in estimates that make the "P" go
higher in the PE calculation.
The valuation of FNSR looks very attractive. While the trailing PE
is well ahead of the industry average, the forward PE of 21x is
right in line with it. More conservative measures like the price to
book multiple and the price to sales multiple each show FNSR
trading at a multiple that is less than half the industry average.
As analysts continue to move estimates higher, the valuation will
only become more attractive unless the stock vaults well above the
recent 52 week high.
Instead of the normal yearlong chart, I thought a 3 month for FNSR
would better tell the tale of what is going on here. The jolt
higher at the start of the chart came when the company increased
guidance in early August. The stock trended higher over the course
of the next few months reaching a 52 week high of more than $26 in
late October. Then the bottom fell out follow the AT&T
guidance. This pull back is allowing investors to get in at a good
price on a stock that is seeing consistent positive earnings
Conference Call quotes are courtesy of SeekingAlpha.com
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
Run Investor service
, a Buy and Hold service where he recommends the stocks in the
Brian is also the editor of
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a trading service that focuses on small cap stocks and also carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
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