Oclaro: Color on Quarter
- B. Riley FBR, Inc. raises their OCLR tgt to $8.50 from $8.25. OCLR's F2Q sales declined 10% Q/Q and are expected to decline another 10% Q/Q in F3Q. Management expects F3Q to be the bottom, as headwinds should be mostly behind the company after F3Q; F4Q sales are expected to increase 5% Q/Q. Since OCLR has decided to stay away from low-margin business in favor of high-margin products such as laser chips and 400G, they expect improving sales and the ramp of new products to drive GM expansion to the high 30s in C2H18. They are reducing FY18/FY19 EPS estimates from $0.53/$0.60 to $0.50/$0.51. Valuation is compelling, as the stock is trading at cash-adjusted 8.5x their FY19 EPS estimate.
- DA Davidson notes Oclaro is one of the leading providers of optical components to the cloud and service provider networking markets. Over the last several quarters the company has faced dual head-winds: a weakening market in China as well as a transition within the cloud market from CFP transceivers to QSFP28 transceivers. The company weathered those headwinds to deliver 2Q results in-line with previous guidance. The China/Datacenter weakness is projected by management to continue into the March quarter, with strong CFP-ACO transceiver demand expected to drive sequential growth in the June quarter. They believe the CFP transition has almost run its course, and that OCLR is well positioned for renewed growth; $9 tgt.
- Needham: To some extent, Oclaro sounded a little more confident even as they remained guarded about the outlook broadly. They are one quarter closer to recovery and they are sustaining their margin structure and generating solid free cash flow. On China, they sounded about the same. Oclaro saw a pick-up in the December quarter with overall China Revs up 20% Q-Q, but they stood firm that this was temporary and expect a reversion to prior demand conditions in CY1Q and still do not see a recovery in China till CY2H18. The March guide was close to their low on the Street and well below the average. They offered soft Q-Q growth guidance for the June quarter, below consensus and their low-on-the-Street estimate. They are cutting our revenue and EPS estimates and staying at our Hold rating.
- OCLR +3% premarket.