Buy Infinera on Friday, Not Today

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Optical networking specialist Infinera (Nasdaq: INFN  ) is a longtime Fool favorite. The stock has been a Rule Breakers recommendation since 2007 and also worked its way into three other Foolish scorecards. Two of these analyst teams call Infinera a "buy first" opportunity today as we head into Thursday's fourth-quarter report. The stock also boasts a perfect five out of five stars in our CAPS system with a stunning 98% approval rating among nearly 1,800 investors with an opinion on the stock.

Can the company live up to this top billing? Let's ponder the evidence at hand.

Danger, Will Robinson!
On Wall Street, the expectations aren't all that rosy:


Q4 2011 Estimate

Q4 2011 Guidance (Midpoints)

Q4 2010 Results

Revenue $97.4 million $105 million $117.1 million
Non-GAAP Earnings per Share ($0.12) ($0.10) $0.07

Estimates from Yahoo! Finance; guidance taken from Infinera's Q3 conference call.

As you can see, the average analyst expects Infinera to perform well below the midpoints of management guidance, and even below the $100 million revenue floor management wanted to set. You might presume that the Street lowered its targets when sector rivals Juniper Networks (Nasdaq: JNPR  ) and Oclaro (Nasdaq: OCLR  ) swung and missed in January, but that's not the case -- the average EPS goal has been steady for two months, and one analyst even boosted that target a smidgen last week.

That said, Infinera's own management expects to turn in a net loss on slower sales. Share prices fell 9% over the last year, reflecting slowing overall growth in optical networking. Infinera shareholders are actually fairly well off: Juniper shares plunged 42% over the same period and Oclaro crashed to the tune of 70%.

Beyond the numbers
Infinera CEO Tom Fallon sees 2012 as sort of a transition year. Speaking in the last quarterly call, he said: "We believe that most carriers planning to expand capacity are looking to upgrade to 100-gig and 500-gig super-channels in 2012 and beyond."

To put those ultra-fast fiber channels into perspective, the current sweet spot lies in 10- and 40-gigabit connection channels. Infinera is early out of the gate with the 100-gig product and also hopes to set the pace on the next-next generation of 500-gig cards.

I don't think there's any doubt whatsoever that the world remains hungry for more bandwidth. Cisco Systems (Nasdaq: CSCO  ) predicts consumer bandwidth to quadruple from 2010 to 2015. Akamai Technologies (Nasdaq: AKAM  ) just published its latest "state of the Internet" report based on traffic to its global network of content servers. The average broadband connection grew 39% faster in just 12 months, while peak speeds spiked 45%. Again, that's just a one-year increase. There are some of the best-connected networking players on the planet; Infinera is just happy to ride the long-term demand wave they're reporting.

What do we do now?
So the long view is strong, but the shorter outlook not so much. Telecom carriers, especially in Infinera's core North American market, seem slow to invest in their networks at the moment. Placing Infinera in the context of recent reports and share-price movements, I'm afraid investors are headed for a bit of a disappointment this week.

While that's terrible news if you really need that investment to pay off by next week, it's not so bad for patient long-term investors and downright good news if you're looking for a better buy-in point. Chances are you'll be rewarded with a great investing window in just a couple of days. Only the smartest investors buy when the night is darkest, after all.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Cisco Systems and Infinera. Motley Fool newsletter services have recommended buying shares of Cisco Systems and Infinera. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

Read/Post Comments (15) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2012, at 4:02 PM, rhealth wrote:

    Thanks for the warning, appreciate the heads up!

  • Report this Comment On February 01, 2012, at 4:13 PM, OceanData wrote:

    Darn, I bought an opening stake in INFN earlier this week.

  • Report this Comment On February 01, 2012, at 5:33 PM, 1wallstreet1 wrote:

    if you're going to do a piece on least get your facts straight:

    "As you can see, the average analyst expects Infinera to perform well below the midpoints of management guidance, and even below the $100 million revenue floor management wanted to set."

    They guided to $100-$110M on the call but a week later announced Thailand flooding expected to impact revenue somewhere between 5-15%.

    Jesus...and MF has a decent size position in infn.

    Get a clue.

    OceanData...if you follow infn...then you know it is one of the most volatile stocks around at earnings time..99% of the time...getting smacked post earnings. Hopefully you did not take your whole position just prior to earnings cause the odds are it will give you a better entry point to fill out your position. Most of us have learned to trade/sell around the core position heading up into earnings taking some profits (like dividends) until it pops and doesn't look back.

  • Report this Comment On February 02, 2012, at 4:49 PM, ncfool wrote:

    As former presidential candidate Rick Perry might say, "oops!"

  • Report this Comment On February 02, 2012, at 4:53 PM, Nardonardo123 wrote:

    as Happy Gilmore would say, "where were you on that one, dipsh*t"

  • Report this Comment On February 02, 2012, at 4:57 PM, mjamesboy wrote:

    ?wallstreet? I'd like to echo the "dipsh*t" comment and add a d-bag to it.

  • Report this Comment On February 02, 2012, at 5:00 PM, maiday2000 wrote:

    The MF once again a perfect contrary indicator.

  • Report this Comment On February 02, 2012, at 5:28 PM, Handsup wrote:

    The MF should know better than to bet against a 5 star rating with 98% of all-stars favourable on the stock.

  • Report this Comment On February 03, 2012, at 9:51 AM, aleax wrote:

    Nobody can be right all the time, of course, but looking at the +17% and more for INFN stock price in early market today I wonder if any TMF article has been any "wronger", faster...!-)

  • Report this Comment On February 03, 2012, at 10:06 AM, DNAstock wrote:

    Wow. Unbelievable. Almost as unbelievable as the MF articles that contain inaccurate current dividend information, often on stocks where the dividend has actually been suspended. No one can predict with certainty what a tsock will do on a given day, but a quick internet search will give you accurate dividend info.

  • Report this Comment On February 03, 2012, at 10:29 AM, techperson wrote:

    OceanData - great move - you should be writing the article.

  • Report this Comment On February 03, 2012, at 10:40 AM, wolfhounds wrote:

    Thanks for the investment advice. Luckily, I read past several quarters transcripts after your article and determined the risk/reward favored buying early. When the TMF dredo is don't try to time the market, how could you give such lousy advice if you thought so highly of this company?

  • Report this Comment On February 03, 2012, at 11:25 AM, MaxTheTerrible wrote:

    I think MF analysts would be wise to practice what they preach, i.e. not trying to time the market...

  • Report this Comment On February 03, 2012, at 11:57 AM, Gr8Writer wrote:

    I was about to buy more INFN at 7.31, when I saw your article, and figured you knew more than I did, so I foolishly (small 'f') took your advice.

    Here's a better suggestion: Go spew your garbage at SeekingAlpha and those other damagemongering sites and leave the real article writing to the professionals.

  • Report this Comment On February 03, 2012, at 12:03 PM, Chriswayne wrote:

    You all are a bit harsh and full of hindsight! If you look at the past several quarters and the stock movement after the conference call, you would have to agree that chances were that a lower stock price would be yours the next day. This fact is in the history. And, we know how finicky the analysts are that cover INFN.

    If you are a gambler, I am, then you may have risked a few hundred dollars on an option call, I did, and the gamble has paid off, yeah baby (March call at .25.)

    I bet that all of the commenters are long INFN, and there are some traders out there among you all as well. Either way, a great investment and gambling vehicle eh?

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