"Why do the heathens rage behind the firehouse
Where Peewee sits upon the wall to preach?
This boy and girl that gather pearls
Of wisdom falling from his mouth
Wash off the blood, wash off the rum"
-- "Oddfellows Local 151," R.E.M., from the 1987 album Document
As optical networking expert Infinera (Nasdaq: INFN ) prepared for Wednesday's earnings report, the stock looked rather jumpy. Wild swings both up and down have added up to essentially nothing in the long run.
The trend continued after Infinera's first-quarter report. Reporting a pro forma net loss of $0.10 per share on $104.7 million in sales, Infinera missed Wall Street's revenue targets, but the bottom-line loss wasn't quite as painful as feared. Investors focused on the downside, and shares traded down about 7% the next day.
This is where we get to turn a blind eye to the heathens raging around us, like in today's tribute to National Poetry Month. Wash the dirt off Infinera's grimy shares and you'll find a fantastic deal hiding inside.
Putting two and two together
I asked you to keep an eye on Juniper Networks' (Nasdaq: JNPR ) report earlier in the week, in order to find clues about Infinera's quarter. As a reminder, Juniper missed estimates last quarter and blamed the shortfall on weak orders from telecom customers -- only to see Infinera debunk that market view a couple of days later. The conclusion was obvious that time. Infinera was busy stealing orders and accounts out from under Juniper and other networking companies' noses.
This time, Juniper had no complaints about sluggish AT&T (NYSE: T ) and Verizon (NYSE: VZ ) hardware investments. Instead, the company beat analyst targets and started boasting about "disciplined operational execution." Note that misses are always someone else's fault if you ask Juniper, but strong results come from the company's terrific execution. I'm not sure I'd want to invest in a finger-pointer like that.
Back to Infinera: Viewed in tandem, Infinera's and Juniper's results show that telecoms really did invest in their networks this quarter. That's a marked change from the fall of 2011, when the pending (and ultimately failed) merger of AT&T and T-Mobile USA gummed up the works. And even if most of the network expansion is focused on the wireless side of the equation right now, the upgraded cell towers eventually need the backing of faster core networks as well.
Pearls of wisdom
"I just see, quite frankly, the investment happening in wireless, the investment that has to at some point translate into core networks," said Infinera CEO Tom Fallon. And the networks are getting ready to take that second step any day now: "I see the amount of quoting and activity that we have, and it's quite substantial right now," Fallon continued. "There are some very substantive builds being planned."
Some of this chatter will not translate into revenue in the second quarter, which is why guidance looked soft and share prices plunged. Long-term investors should see this discount as a buy-in opportunity, though. Those missing sales will show up later in the year, and you'll be sorry then if you sold Infinera this week. This five-star CAPS stock and recommendation of four Foolish newsletters is best of breed in every way, and it will bounce back from these low, low prices.
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