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Why Finisar Corporation Flew This Morning

By Brian D. Pacampara, CFA – Feb 11, 2014 at 10:26AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Finisar Corporation (FNSR) climbed 4% this morning after Jefferies upgraded the data communications equipment company from hold to buy.

So what: Along with the upgrade, analyst James Kisner boosted his price target to $30 (from $24), representing about 34% worth of upside to yesterday's close. While momentum investors might be turned off by the stock's sluggishness over the past several months, Kisner thinks Finisar might be too good to pass up given the seemingly strong sector tailwinds working in its favor.

Now what: Jefferies lowered its 2014 EPS view for Finisar slightly from $1.60 to $1.58, but raised its 2015 view from $1.70 to $1.80. "We're upgrading FNSR to Buy given our checks suggesting very strong demand trends in data center optics and a good backdrop for Telecom optical spend in CY14," noted Kisner. "We see potential for significant upside to our raised EPS estimates driven by these trends." More importantly, with Finisar boasting a solid balance sheet and trading at a cheapish forward P/E of 12, the downside might be limited enough to take a chance on. 

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Finisar Stock Quote
Finisar
FNSR

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

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