Thursday night, optical-networking expert Finisar (NASDAQ:FNSR) is set to report earnings for its fiscal second quarter of 2007. Let's see how its deck is stacked for this deal.

What analysts say:

  • Buy, sell, or waffle? Out of the nine analysts following Finisar today, two are holding while the other seven want to buy. In Motley Fool CAPS, Finisar is a five-star stock, with the backing of 23 all-star bulls and no bearish peers.
  • Revenues. Wall Street expects about 27% sales growth over last year, for a tally of $110 million or so.
  • Earnings. The average estimate calls for a $0.03 profit per share, up from breakeven last year.

What management says:
In the last earnings report, CEO Jerry Rawls said the second half of fiscal 2007 should pick up considerably as 10-gigabit-per-second networking products finish their certification among a variety of customers. Those high-end products should give Finisar a richer product mix and, thus, higher margins.

Unfortunately, this quarter still falls under the first half of the fiscal year, so the full impact of that shift won't be seen this week. But a few avant-garde adopters should provide a continued margin climb anyway, albeit on a smaller scale.

What management does:
Unless Finisar produces a GAAP net loss of $9 million or so, or roughly $0.03 per share, rolling net margins will see daylight this quarter. Anything else would be quite a surprise. This turnaround looks to be right on track.

Margins %

4/05

7/05

10/05

1/06

4/06

7/06

Gross

27.5

27.6

28.0

29.3

35.0

37.2

Op.

(22.8)

(20.0)

(15.9)

(11.4)

(0.5)

5.3

Net

(40.6)

(36.9)

(33.4)

(19.1)

(6.8)

(1.7)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Brighter days seem to be dawning for the optical-networking company, as data centers fill up with optical backbones and storage networks, and telecoms such as AT&T (NYSE:T) and Verizon (NYSE:VZ) roll out fiber to the premises in market after market. Finisar's main strength is in the local area networking sector, though it does offer metropolitan-area networking solutions as well.

Finisar spends plenty on R&D, and the resulting new products are driving the recent business improvement. It also spent $15 million on renovations of its Allen, Texas, manufacturing facility to satisfy the expected order increases and produce those fancy new high-speed components.

In all, this is one tasty little nugget that the CAPS community dug out way before Wall Street got around to it. And it gets better, since the stock still looks undervalued. That means it's not too late to climb aboard this bandwagon.

Competitors:

  • JDS Uniphase (NASDAQ:JDSU)
  • Stratos International (NASDAQ:STLW)
  • McAfee (NYSE:MFE)

AT&T is a former recommendation of Motley Fool Stock Advisor.

Fool contributorAnders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdingsif you like. Foolishdisclosureis always a bright spot.