Is This the Bottom of JDSU's Bounce?


Shares of JDS Uniphase (NAS: JDSU) have taken a 23% haircut over the last six months, lagging far behind the general market. But in the optical networking sector, JDSU is actually one of the lucky ones -- Finisar (NAS: FNSR) plunged 37% over the same period while Oclaro (NAS: OCLR) lost a heart-stopping 45%.

Oclaro recently reported results, coming up short against Wall Street's earnings targets. Finisar's report is still a couple of weeks away. But tonight, we'll hear all about JDSU's fourth quarter and 2012 fiscal year. What should we expect from the Canadian colossus?

Analysts expect JDSU's earnings to drop more than 50% year over year, landing at $0.12 per share. Sales are seen dwindling 10.5% to $423 million. So far, so ouch.

But you should keep in mind that JDSU often comes up aces on the bottom line. The networker shocked the Street by at least 38% in two of the last four reports. For what it's worth, the midpoint of JDSU's revenue guidance sits below the analyst consensus at just $420 million. The company tends to beat revenue targets as well, but posted a big miss last quarter.

To get some color on the Street view, consider recent comments from Goldman Sachs, which started coverage of JDSU last week. The firm slapped a buy rating on this stock with a price target about 30% above prevailing levels. Goldman expects JDSU to benefit from North American telecoms investing in their infrastructure again. We should see a "snap-back" in equipment orders as the carriers exhaust their aging stockpiles of high-speed networking gear.

I largely agree that telecoms are due to order up some fresh equipment, but two questions remain unanswered here:

Will this quarter be the bottom of a cyclical bounce, or is the rebound still a reporting period or two away?

Can JDSU keep up with its many rivals as AT&T and Verizon go shopping for truckloads of 4G LTE equipment?

Oclaro's weak report is not an encouraging sign for the first question, though it could be good news on the second point if market shares are shifting. Then again, Oclaro recently closed a bet-the-farm acquisition of Opnext as part of a larger turnaround effort, and is hardly the best barometer of the optical industry's health. JDSU is a far better weather vane, and whatever comes out of this report is worth keeping in mind when Finisar steps up to the plate at the end of August.

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