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Why NeoPhotonics Stock Jumped Today

By Evan Niu, CFA – Sep 1, 2020 at 12:32PM

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The optical networking specialist got a boost from Wall Street.

What happened

Shares of NeoPhotonics (NPTN) have jumped today, up by 8% as of 11:30 a.m. EDT, after getting an upgrade from Wall Street. B. Riley FBR boosted its rating on NeoPhotonics stock to buy in the wake of the the company reaffirming its outlook.

So what

Yesterday, NeoPhotonics said it expects to hit its guidance for the third quarter despite increased restrictions on Huawei, which is the optical networking technology company's biggest customer, accounting for 52% of revenue in Q2. Guidance for the third quarter issued earlier this month calls for revenue of $97 million to $105 million, and NeoPhotonics currently sees about $40 million coming from Huawei. The company also said that revenue from other customers is expected to grow 40% to 50% over the next year.

Green stock chart rising

Image source: Getty Images.

B. Riley FBR analyst Dave Kang kept his price target on the stock at $9 but upgraded the overall rating due to "Huawei being de-risked while demand from non-Huawei customers remains strong, which should result in diversified customer base and improved quality of earnings."

Now what

Kang believes that demand for 400G offerings from other customers could help offset some of the lost business from Huawei within the next year. However, the analyst still lowered near-term estimates for NeoPhotonics' revenue and earnings in 2020 and 2021.

"In particular, our highest speed over distance products for 400G and above applications continue to gain traction with leading network equipment manufacturers and are expected to represent more than 20% of total revenue in 2020, after only two years in the market," CEO Tim Jenks said in yesterday's business update.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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