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JDSU Executes While the Industry Burns

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JDS Uniphase (Nasdaq: JDSU  ) is going from strength to strength. The difference is that this time, the company worked with lower investor expectations.

JDSU's second-quarter report, three months ago, goosed the stock by 25% overnight with tremendous results and an even brighter future outlook. The third quarter delivered on JDSU's promises with $0.22 of non-GAAP earnings per share on $454 million in sales.

That's up from $0.10 per share and $333 million a year ago, respectively. The earnings improvement brings JDSU's adjusted P/E ratio down to a very reasonable 25 times trailing earnings, still a bit higher than optical parts giant Finisar (Nasdaq: FNSR  ) , but far below direct rival Oclaro (Nasdaq: OCLR  ) . That's after accounting for a 10% jump in JDSU's share price overnight -- a direct reaction to the good news.

That's not enough to overcome the 22% slide that began with a weak report from Finisar in early March, which blew the froth off the entire optical networking industry. Finisar blamed inventory corrections at some of its major telecom customers plus weak orders from China for its current and coming troubles. JDSU didn't deny those trends but delivered strong sales and a cheerful next-quarter outlook anyway.

I think it's clear who is and isn't executing crisply in the optical networking space right now. That's why JDSU jumped on its own after the report without causing a general Gainapalooza across the optical networking industry. Finisar, Ciena (Nasdaq: CIEN  ) , and Oplink (Nasdaq: OPLK  ) saw very modest gains on Thursday and everybody else stayed even farther back.

JDSU is far from the highest-rated optical networker in our CAPS system, and has even inspired our Big Short analysts to issue a short-sale recommendation. Some of the red flags uncovered by the Big Shorts team remain, including a steady rise in Days Sales Outstanding. But I think those troubles are a sector effect, and that JDSU is proving its worth by executing its way out of a Kevlar bag that's trapping many of its competitors. Shorting JDSU looks like a bad idea from where I stand.

What do you think? Add JDSU to My Watchlist, then discuss its shortability or lack thereof in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. JDS Uniphase is a Motley Fool Big Short short-sale recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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