Does Finisar Deserve This 33% Rocket Ride?

Optical networking component maker Finisar (NAS: FNSR) comes into its third-quarter report on a head of steam. Shares have climbed 33% in 2012 in spite of some industrywide hiccups. It's not a full head of steam, mind you; Finisar fell as much as 4% on Tuesday thanks to a negative analyst note.

Will the bulls prevail on Wednesday night or do the skeptics get the final word?

The word on the Street
Analysts are not looking for a monster quarter here. Earnings are supposed to take a 53% haircut from last year, landing at $0.22 per share. Sales are estimated at $244 million, down from $263 million a year ago.

That's roughly in line with management's own guidance. However, that forecast is three months old and a lot of water has run under the bridge since. In particular, the flooding in Thailand gave Finisar reason to stay conservative, but sector rivals have already shown us that the recovery is ahead of schedule. For example, Infinera (NAS: INFN) stayed conservative and then knocked the cover off the ball.

I see no reason that Finisar shouldn't follow the same pattern. In fact, other analysts have already noted that Finisar's Thai damages might not be so bad. If that's the case, the original guidance will be way too conservative -- and so will the analyst projections.

Where's the beef?
That bearish analyst we mentioned earlier, Jim Kisner from Jefferies, reduced the stock to a hold rating due to refreshingly long-term concerns. When Cisco Systems (NAS: CSCO) bought Lightwire the other day, the networking giant gained an in-house source of components that typically come from Finisar or smaller competitor Opnext (NAS: OPXT) . You'll note that Opnext shares dropped nearly as much as Finisar's on that analysis, taking some momentum out of another recent top performer.

I can appreciate the long-term change in the competitive landscape that Cisco hath wrought. I'm not entirely sure that it's a big deal for Finisar, though. Removing Lightwire from the open market forces all the other networking equipment makers to source their components from, say, Finisar or Opnext instead.

Cisco is the big dog in general networking, but Alcatel-Lucent (NYS: ALU) is not small potatoes either when it comes to high-speed optical equipment. There are plenty of big fish in the sea beyond these dueling giants, too.

I'll look for Finisar's management to discuss that market-changing event in this week's earnings call. We should also get a good reading on the impact of the Bangkok floods. I think Finisar will earn its raucous price gains and then some. But did you know that Foolish analysts have found an even more promising stock for your portfolio in 2012? Learn all about The Motley Fool's Top Stock for 2012 in a special report -- free for a limited time.

At the time thisarticle was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Cisco Systems and Infinera. Motley Fool newsletter services have recommended buying shares of Infinera. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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