Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Infinera Stock Is Falling Today

By Brian Feroldi - May 29, 2018 at 4:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares drop after an analyst turns negative on the company's prospects. Here's what investors need to know.

What happened

In response to receiving an analyst downgrade, shares of Infinera (INFN 5.23%), a maker of equipment used in telecommunications, fell 10% as of 3:45 p.m. EDT on Tuesday.

So what

Investors can blame today's move on George Notter, an analyst at the investment firm Jefferies. Notter downgraded Infinera's stock today from "hold" to "underperform."

Notter said that his decision to downgrade the stock was based on his view that the company's current valuation reflected "the upside case for the business." What's more, he also expressed concern that the company still isn't innovating at a fast enough pace to keep up with competitors.

Finally, Notter said that management's recent commentary on pricing makes him believe that the company is no longer viewed as the market leader.

A person in a suit with their hand over their face talking on phone.

Image source: Getty Images.

In response, he dropped his price target on the company's stock to $7.50. That's $0.50 below his prior outlook and far below yesterday's closing price of $10.07.

Wall Street responded to the negative commentary by knocking down the share price.

Now what

Infinera has been in a funk for several years, so it is understandable why Notter isn't feeling optimistic about this company's prospects. The company is still burning capital and management's guidance for the back half of 2018 only calls for modest improvements in revenue over the first half of the year. While management is calling for margin improvements and a return to non-GAAP profitability, there's no doubt that this company remains in a tricky situation.

If Notter is correct that Infinera's new products still won't return this company to a market leading position, then it is hard to find a reason to own this stock. Given the uncertainty, I do not view today's drop as a buying opportunity.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jefferies Financial Group Inc. The Motley Fool recommends Infinera. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Infinera Corporation Stock Quote
Infinera Corporation
$5.63 (5.23%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.