Why Fabrinet Shares Jumped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Fabrinet jumped by nearly 15% during intraday trading Thursday after Stifel Analyst Patrick Newton upgraded the stock from "Hold" to "Buy," and assigned a $20 price target.
So what: In his report, Newton notes his positive view of the optical component manufacturer is driven by a number of factors. Most notably, he says, Stifel's research indicates "accelerating demand trends in both optical communications and commercial laser end markets over the next several quarters." As a result, he now believes his consensus earnings estimates for Fabrinet over the next two quarters is likely too conservative, especially after the company's most recent quarterly report showed it is continuing to penetrate new end markets.
Finally, recent asset sales announced by Oclaro, Fabrinet's largest customer, should shore up Oclaro's balance sheet, which likely eliminates a significant material risk for Fabrinet.
Now what: Fabrinet has beat expectations in each of its past five quarterly reports, and Stifel seems to think they're on pace to do it again. Even after today's jump, shares of Fabrinet do appear inexpensive at just 8.2 times last year's earnings. With the stock currently trading around 20% below Stifel's new price target, if Fabrinet can manage to continue its winning streak going forward, shares today could prove a bargain for patient investors down the road.
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The article Why Fabrinet Shares Jumped originally appeared on Fool.com.Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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