Why Infinera Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Infinera  (NASDAQ: INFN  ) dropped more than 13% during intraday trading Thursday after the company reported disappointing guidance following its solid third-quarter earnings report.

So what: Quarterly revenue rose 26.5%, to $142 million, which translated to an adjusted net income of $0.10 per diluted share. For reference, both numbers beat analysts' expectations, which called for adjusted earnings of $0.04 per share on sales of $140.4 million.

However, on the company's subsequent earnings conference call, management provided weak fourth-quarter guidance for revenue in the range of $130 to $140 million, or below current estimates for Q4 revenue just over $141 million.

Now what: CFO Ita Brennan weighed in to elaborate that, even though the company continues to see a strong level of activity with requests for proposals, "The timing of closing these opportunities and their impact on quarterly revenues will remain unpredictable."

Of course, investors don't generally enjoy uncertainty and chunky revenue, so it's hard to blame them for taking a step back today, with the stock currently trading at nearly 42 times next year's estimated earnings. While Infinera could potentially pull out a win going forward by closing on some of its proposals, I'd personally rather put my money to work in a less expensive, more predictable business.

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4/16/2014 2:45 PM
INFN $8.11 Down -0.03 -0.37%
Infinera CAPS Rating: *****

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