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Why Infinera Stock Is Surging Today

By Brian Feroldi – Aug 8, 2019 at 12:50PM

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Shares pop after the company reports better-than-expected second-quarter results and offers optimistic guidance.

What happened

Shares of Infinera (INFN 4.09%), a maker of telecom equipment, rose as much as 21% in trading on Thursday. Shares were up about 9% as of 12:35 p.m. EDT. The bullish move is directly attributable to the release of upbeat second-quarter results.

So what

Management had already warned investors that the quarter was going to be rough, so the headline numbers weren't great in absolute terms:

  • Non-GAAP revenue grew 47% to $306.9 million. The huge jump is traceable to last year's buyout of Coriant. That was at the high end of guidance and was comfortably above the $300.4 million that Wall Street was expecting.
  • Non-GAAP net income fell significantly to negative $42 million, or $0.24 per share. That was lower than the $0.28 net loss per share that traders were expecting.
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Image source: Getty Images.

On the conference call with Wall Street, management stated that bookings grew 15% quarter on quarter. This gives management confidence that the company will return to profitability by the fourth quarter of this year.

However, the company's guidance suggests that it will post another significant loss in the upcoming quarter:

  • Non-GAAP revenue is expected to land between $320 million and $340 million. Wall Street was only expecting $328 million in total revenue.
  • Non-GAAP EPS is expected to land between negative $0.19 and negative $0.15. The consensus estimate in the analyst community calls for a $0.15 net loss per share.

Traders are bidding up this beaten-down stock in response to the upbeat commentary and better-than-expected quarterly results and guidance.

Now what

It's nice to see that Infinera's pipeline of projects continues to grow and that it is on pace to return to profitability by the fourth quarter of this year. If the company can officially turn the corner, things finally might be looking up for investors.

I'm hopeful that this turnaround is for real, but this business has a long history of destroying shareholder value. For that reason, I'm content to root for Infinera's success from the safety of the sidelines.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool recommends Infinera. The Motley Fool has a disclosure policy.

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