Why Finisar Corporation Stock Dropped on Friday

Specifically, analysts at JP Morgan downgraded DigitalGlobe stock from "Overweight" to "Neutral" this morning, and simultaneously lowered their per-share price target on the satellite imagery specialist from $30 to $27. Even so, keep in mind that lowered target would still offer a hefty premium over yesterday's closing price of $20.65 per share, and is 42% above DigitalGlobe's current trading price at around $19 per share.

What: Shares of Finisar Corporation were down 18.4% as of 11:30 a.m. Friday after the optic communications products specialist reported weaker-than-expected fiscal-first-quarter 2016 results.

So what: Adjusted quarterly revenue fell 1.9% year over year to $314 million, albeit primarily due to an extra week in the year-ago period. Finisar was quick to point out that adjusting for that extra time shows this year's fiscal Q1 had higher average weekly revenue, driven primarily by strength in the company's 40-gigabit transceivers for datacom applications. Nonetheless, analysts were still anticipating higher revenue of $318.7 million.

Meanwhile, Finisar's adjusted net income declined 8.7% over the same period to $24.5 million, or $0.23 per diluted share. Analysts, on average, were modeling adjusted earnings of $0.26 per share.

Now what: Looking forward, Finisar expects current-quarter revenue of $304 million to $324 million, and adjusted earnings per diluted share of $0.20 to $0.26. The midpoint of both ranges sits below Wall Street's consensus for fiscal Q2 revenue of $318.7 million, and earnings of $0.26 per share.

During the subsequent conference call, CEO Jerry Rawls explained gross margin during the current quarter is expected to fall to roughly 30% -- down from 30.2% and 30.3% in fiscal Q1 2016 and Q4 2015, respectively -- due to continued high levels of competition. But Rawls also noted, "We have started taking actions to reduce our operating expense levels," which should fall to 21.4% of revenue (compared to 21.8% in the first quarter), with a goal of reaching 20% by fiscal 2017. And while the remainder of this fiscal year is expected to be "challenging," Rawls says, "We are optimistic about fiscal 2017" given the impending launches of new products to support data center construction and upgrades to existing markets.

Nonetheless, our stock market loathes being effectively told to "Hurry up and wait." So given its latest earnings and guidance misses, it's hard to blame investors for taking a step back from Finisar today.

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