Infinera: Gigabit Growth

07/08/2016 8:00 am EST


Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

Our latest featured stock is a global provider of networking equipment designed to meet the growing demands for optical bandwidth, explains Taesik Yoon, growth expert and editor of Forbes Investor.

Infinera (INFN) makes large-scale Indium Phosphide photonic integrated circuits (PICs) that transmit and receive 500 Gigabits per second.

Its markets are being driven by increased use of high-speed Internet access, mobile broadband, and high-definition video streaming, business Ethernet and cloud-based services

Boosted by the acquisition of metro packet-optical networking solutions provider Transmode last August, total Q1 revenue climbed 31.0% from the prior year to $244.8 million. 

Product revenue jumped 34.3% to $216.1 million and adjusted net income rose 26.9% to 19 cents per share, which was 2 cents above the consensus estimate.

Despite the earnings beat, Q1 revenue came in slightly shy of expectations.  The company cited the lack of orders from a major Transmode metro customer in the past several quarters as a main reason for the shortfall. 

Looking at the bigger picture, INFN’s prospects over the longer term remain positive thanks to a number of favorable macro trends that should help support strong, steady growth for years. 

This includes expectations for substantial investment spending by its customers to support the increasing bandwidth consumption driven by the rapid network architecture shift to the cloud.

We also expect an ongoing shift to higher resolution media such as 4K video, the eventual transition to 5G mobile and the emergence of the “Internet of Things” through the proliferation of network-enabled “smart” appliances, consumer electronics and other devices.

The short-term slowdown in INFN’s business may temporarily impede the company’s intermediate goal of expanding its operating margin to 15% (from 12.7% in 2015).

However, we think the rebound in performance anticipated later in the year, along with the tremendous opportunities that exist over the longer term stemming from the growth catalysts and market drivers noted above, will help the company get there much quicker than most believe. If so, INFN’s stock is not likely to stay depressed for long.

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By Taesik Yoon, Editor of Forbes Investor

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