Fiber optic stocks have had an up-and-down month, following big misses from Ciena (CIEN) and Finisar (FNSR). But IBD’s Telecom-Fiber Optics group was the best-performing group on Friday, ahead of a key industry conference.
So when executives from Lumentum Holdings (LITE), Finisar (FNSR), Infinera (INFN), Oclaro (OCLR), Acacia Communications (ACIA) and other optical communications providers gather next week in Los Angeles, what will be the hot topics?
For one, prospects for industry consolidation could be on the minds of top management when the Optical Fiber Communication (OFC) exhibition in Los Angeles starts March 19.
“The optical component space continues to have too many vendors and not enough buyers,” said Meta Marshall, a Morgan Stanley analyst in a report previewing the OFC. “However, it has been difficult for any strategic activity to take place as the industry is in the midst of multiple investment cycles that have increased profitability and valuations.”
She went on to say: “Ultimately, this industry needs to have fewer players to be healthier when current cycles end. Capital raising by many market participants in the past few months certainly raises the probability of an event, something we hope to hear more chatter about next week.”
According to a Jefferies analyst, Finisar could be eyeing Oclaro or other companies.
Stocks in IBD’s Telecom-Fiber Optics group have seesawed in early 2017 amid a bumpy earnings season and weaker-than expected demand from China. But they closed the week strong, extending post-Fed gains on Friday. Applied Optoelectronics (AAOI) rose 5.9%, Acacia Communications 5.35%, Lumentum 1.1%, Oclaro 4.1%, Finisar 2% and Ciena 0.85%. Infinera dipped 0.6% after rising more than 8% on Thursday.
Applied OptoElectronics and Lumentum have the highest IBD Composite Rating, an investing metric, in the group, with both at 99. Oclaro comes next with a composite rating of 95 out of a possible 99.
Shares in Lumentum have climbed on speculation it could push into a new market, consumer electronics, and lasso a big customer in Apple (AAPL). Lumentum is developing 3D sensors for smartphones. Finisar is also targeting the 3D sensor market.