Will Finisar Corporation (NASDAQ:FNSR) Stock Benefit From Data Centers And Artificial Intelligence?

- August 2, 2017

Finisar Corporation (NASDAQ:FNSR) Stock is set to benefit from a surge in Data Centers but also the Artificial Intelligence Boom (AI).  Data center demand from major cloud players like Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MFST) has been very strong in 2017 and should continue for some years to come, especially as other large companies follow.

Why Finisar Corporation (NASDAQ:FNSR) Stock Is My August Value Of The Month

Finisar Corporation (NASDAQ:FNSR) manufactures and distributes fiber optic subsystems and other electronic components.  This sector is experiencing a boom due to the boom in data usage from 5G, cloud, smart connected vehicles, and soon semi and fully autonomous vehicles.  The company states on their website that they are “the world’s largest supplier of optical solutions for the communications industry.”

The company was founded by Frank H. Levinson and Jerry S. Rawls in April 1987 and is headquartered in Sunnyvale, California, and employs 14,000 people.

Finisar 5 Year Stock Price Graph

Source: Bloomberg

The Fiber Optic Industry Outlook

Fiber optics is mainly used for digital transmission of data and is increasingly being used in place of metal wires due to its efficiency and high transmission capacity. Artificial Intelligence (AI) is also playing an increasing role in the need for more high speed data transmission and connections.

Sector forecasts include: 

  • Sales of high speed optics to mega data-centers of cloud companies is expected to exceed $2 Billion by 2020.
  • According to Research and Markets, the global fiber optics market is forecast to grow at a CAGR of 9.49% during the period 2016-2020.
  • According to Markets and Markets, the optoelectronic components market was valued at US $32.17 Billion in 2014 and forecast to reach US $55.53 Billion by 2020, at a CAGR of 9.41% from 2015 to 2020.
  • Ovum research forecasts the optical communications segment to increase by a CAGR of 14% between 2015 and 2019.

Optoelectronic Component And Optical Communications Market Growth Forecasts

Source

About The Business:

Finisar’s optical subsystems consist primarily of transmitters, receivers, transceivers, transponders and active optical cables that provide the fundamental optical-electrical, or optoelectronic, interface for interconnecting the electronic equipment used in building networks.

Opto-electronic devices are used in the switches, routers and servers.  These are found in line networks, antennas, and base stations for wireless networks.  They are also used in data centers, cable TV, and fiber to the home.  The focus being the upper end of the market that requires large amounts of high speed data.

Demand from Chinese telcom has been soft in 2017 affecting Finisar’s revenue, but should pick up as more people move to using 5G networks.  High speed data usage and hence demand for fiber optic components will only get stronger each year.

The company has high volume, low cost vertically integrated manufacturing centers in China and Malaysia.

Growing Market Share

Source

Revenue breakup

Finisar’s revenue is quite diversified with about 1/3 each coming from US, China/Malaysia, and the rest of the world.

 

Key Revenue Drivers For Finisar Corporation (NASAQ:FNSR) Stock 

As you can see in the chart below, FNSR Stock price should benefit nicely pretty soon.  The chart below highlights the key drivers for Finisar’s revenue growth,  across the various sectors.

Source

Competitors

Competitors include Applied Optoelectronics (NASDAQ:AAOI), Broadcomm (NASDAQ:AVGO), Fabrinet (NYSE:FN), Lumentum (NASDAQ:LITE), NeoPhotonics (NYSE:NPTN), Oclaro (NASDAQ:OCLR).

Valuation And Conclusion On Finisar Corporation

Finisar (FNSR) currently has a market cap of $3.1b, and an enterprise value of 2.1b, as the company is very well cashed up with $1.237b as of April 30, 2017, and no debt.

2018 net profit margin is forecast at a healthy 14.5%, with 2018 net profit estimated to reach $220 Million.

2018 PE is only 14.4 representing excellent value for a growth stock.

Analyst consensus price target for FNSR Stock is $37, representing 36% upside.

The fiber optic industry boom has already begun with the surge in demand initially from data centers.  Next will be the additional surges in demand from 5G networks, and smart cars, followed by autonomous vehicles.  With each passing year the demand for high speed data is rapidly increasing, requiring that the infrastructure backbone is rapidly expanded.

Finisar (FNSR) is perfectly positional to benefit from this massive increase in demand by providing the fiber optic subsystems and other electronic components.

Despite a brilliant balance sheet with over a billion in cash, strong profits, and a strong growth outlook the stock trades on a 2018 PE of just 14.4, mostly due to a temporary reduction in Chinese telcom revenues in the last quarter.  I expect this area to soon stabilize or recover, making this an excellent opportunity for investors to take a position at current prices.

 I Would Rate FNSR Stock A Strong Buy And Hold As My August Value Of The Month.

 

 

 

 

 

 

 

 

 

 

This entry was posted in 2017 Stock Outlook, Editor's Pick, Hot Stocks, Standout Content, Technology, Timely Analysis, Value Of The Month Bookmark the permalink.
RSS feed for this post. Post a comment or leave a trackback: Trackback URL.

2 Trackbacks

  1. […] Will Finisar Corporation (NASDAQ:FNSR) Stock Benefit From Data Centers And Artificial Intelligence? … (bnlfinance.com) […]

  2. […] competitors include Finisar Coporation (NASDAQ:FNSR) which I wrote about here.  Others include NeoPhotonics (NYSE:NPTN), Oclaro (NASDAQ:OCLR), and Lumentum (NASDAQ:LITE). […]

Post a Comment

You must be logged in to post a comment.







Join the 100s Who Beat the Market with a BNL Membership

See What Current Members Are Saying

My Complete Access BNL Membership Includes

  • No contract. Guaranteed results. Cancel anytime.
  • Unrivaled Performance. The BNL Portfolio has outperformed the S&P 500 by 150% since October 1, 2015
  • Access. You know what goes in the BNL Portfolio, David’s Dividend Portfolio, and Eddy’s Options.
  • Alerts. You know when a trade is made in all three managed portfolios with application, text, and email alerts
  • Transparency. Verifiable trade records for the BNL Portfolio, David’s Dividends, & Eddy’s Options
  • Research. We have coverage on more than 50 companies
  • Results. Our 10 highest rated stocks outperformed the market by 134% last year
  • Live Chat. Join 100s of other members in an exclusive Members Only section with Chat
  • Growth. We are the fastest growing financial research platform in our industry.
  • Build My Portfolio. You give us your goals, we help you get there
  • Premium Content. Unlock hidden sections in each article. You also get Value of the Month selections and BNL Research Reports.
  • Community. We have professionals and beginners; retirees and college students; the 99% & 1%, but here, we are all equal.


Like what you see? Sign up for our newsletter and get the latest stock picks straight to your email!

%d bloggers like this: