The analyst firm also lowered its price target for the company to $19 from $25. Analysts James Kisner and Jason North said that pricing pressure for Datacom optics "is 'brutal' right now' due to companies with "Spartan business models" and large footprints in China.
The analysts wrote, "We are downgrading Finisar from Buy to Hold given our checks suggesting: 1) a "brutal" pricing environment for datacom optics, particularly in China, as well as in Telecom in N. America; 2) worse than expected share for FNSR in 100G Datacom; 3) an inventory correction in China; 4) vertical integration risks from Huawei and Cisco; 5) Looming potential price pressure/share loss from numerous start-ups and potentially Intel as the market transitions to 100G."
Separately, TheStreet Ratings team rates FINISAR CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate FINISAR CORP (FNSR) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 25.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Although FNSR's debt-to-equity ratio of 0.25 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.13, which clearly demonstrates the ability to cover short-term cash needs.
- FINISAR CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FINISAR CORP turned its bottom line around by earning $1.09 versus -$0.07 in the prior year. This year, the market expects an improvement in earnings ($1.42 versus $1.09).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 641.2% when compared to the same quarter one year prior, rising from $3.88 million to $28.75 million.
- You can view the full analysis from the report here: FNSR Ratings Report
EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he and Stephanie Link think could be potentially HUGE winners. Click here to see the holdings for FREE.