How High Can Finisar Earnings Jump?

Finisar (FNSR) will release its quarterly report on Thursday, and with the stock having recently hit new yearly highs, investors appear more optimistic about the optical networking company's prospects than they did earlier this year. Nevertheless, even if Finisar earnings do manage to climb as much as shareholders hope, the question going forward is how long the company can sustain its growth rate into the future.

Optical networking companies like Finisar have faced challenging times for quite a while, as customers have been reluctant to make major capital expenditures despite the promise of speeding up data flow and making information easier to analyze. Lately, though, the networking industry has shown new signs of life, pointing to a potential turnaround for the industry and getting investors excited about Finisar and its peers again. Let's take an early look at what's been happening with Finisar over the past quarter and what we're likely to see in its report.

Stats on Finisar

Source: Yahoo! Finance.

Can Finisar earnings keep climbing higher this quarter?
Analysts have continued to get more enthusiastic about Finisar earnings in recent months, boosting their July-quarter estimates by more than half and adding $0.28 per share to their full-year fiscal 2014 projections. The stock has risen sharply as well, climbing more than 50% since late May.

Finisar opened the quarter with a strong earnings report for its April quarter, with the stock jumping double-digit percentages in late June after the announcement. A 2% rise in revenue might not sound like much, but it was more than investors had expected to see, and Finisar gave guidance indicating much higher sales and earnings in its July quarter.

In some ways, these gains seemed inevitable. After all, major telecom companies AT&T and Sprint have both shown signs of ramping up their capital expenditures in efforts to bolster their respective networks and support their competitive positions in the wireless space, and the billions that they'll spend on optimizing their wireless infrastructure should work their way into Finisar's industry. Finisar's results confirmed what rival Ciena (CIEN 0.55%) had already shown in early June, with its own unexpectedly strong results giving its shares a big lift in hopes that Internet-infrastructure spending would keep rising.

Indeed, Finisar's preliminary estimates for the quarter support the optimistic view. The company said early last month that its sales and earnings would both come in well above its previously projected ranges, pointing to strong sales of its Ethernet transceivers. Those sales of high-margin products also helped boost Finisar's gross margins upward, further enhancing its earnings potential. Indeed, Finisar seems to be winning the battle against some of its competitors, as JDS Uniphase (VIAV -5.74%) has continued to struggle, especially in its optical-component business. If JDS Uniphase can't defend its turf in the optical segment, it could open new doors to Finisar to gain market share.

In the Finisar earnings report, watch for the company to confirm or contradict what we'll hear from Ciena tomorrow. If Finisar outperforms Ciena's results, it could spell even bigger gains ahead for the rising networking star.

Click here to add Finisar to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.