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