A Merriman, Curhan, Ford & Co. analyst upgraded Oplink Communication Inc. on Monday, saying a steep drop in the fiber-optic component maker's shares on Friday factors in downside scenarios.
Analyst Tim Savageaux moved his rating on the Fremont, Calif., company to "Neutral" from "Sell" after the stock fell 28 percent to close Friday at $8.65.
That share price reflects about $6 in cash and about $1 in real estate value, making the company's effective real estate value about $46 million, he said.
"Although we believe a fundamental turn is a few quarters away, we believe the optical networking market remains robust and will afford the company an opportunity to restore growth and profitability," Savageaux said in a note to clients.
Oplink will likely be helped by a "tailwind" despite challenges at a key customer that may harm sales, he said. The company has strong relationships with industry leaders, he said.
As the company transitions, it will likely continue to turn a profit, most likely through interest income, he said. The company has $115 million in cash and no debt, he noted.
"We believe this strong financial position limits share downside," Savageaux said.
Of the eight analysts reporting coverage to Thomson Financial, three rate Oplink a "Buy," two rank it "Sell" and three rate it the equivalent of "Hold."
Shares dropped Friday after Oplink said after the closing bell on Thursday that it expects a loss in the fiscal third quarter due in part to inventory charges and dropping European sales.
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