Goldman On Optical Stocks: Infinera And Lumentum Upgraded, Ciena Downgraded

Goldman Sachs has revised its ratings on optical stocks by upgrading Infinera Corp. (NASDAQ: INFN) to Buy and Lumentum Holdings Inc (NASDAQ: LITE) to Neutral. The brokerage downgraded Ciena Corporation (NYSE: CIEN) to Neutral.

Infinera Upgrade

Analyst Doug Clark says Infinera’s a suite of new products should lead to revenue re-acceleration and margin expansion over the next two years. Clark raised his price target by $3.50 to $13.50, which represents 30 percent potential upside from the recent close.

“We expect revenues to bottom in 1Q and to return to positive yoy growth in 2H17, as Infinera benefits from a reduction in customer M&A overhang and with a ramp of new products. We forecast margins to rise with new product availability, leading to a return to profitability,” Clark wrote in a note.

Lumentum's 3D Sensing Opportunity

Meanwhile, Clark upgraded Lumentum to Neutral from Sell, as he factors in more upside optionality from the 3D-sensing opportunity. The analyst also raised his price target to $45 from $38.

Recent market commentary suggests it's increasingly likely to see 3D sensing capabilities in upcoming flagship smartphones, creating a sense of hype among investors. Lumentum recently noted that it is in trials with a key customer (likely Apple Inc. (NASDAQ: AAPL) as per WSJ).

“Depending on adoption and market share, we estimate 3D sensing from the iPhone alone could represent $39-273mn in revenues in FY18,” Clark continued.

Limited Upside For Ciena

In addition, Clark downgraded Ciena to Neutral from Buy as he no longer sees upside to estimates and believe most catalysts are well understood at this point (web 2.0, Verizon metro, India). That said, Clarke’s price target remains at $27.

Moreover, the analyst sees limited margin upside due to competition and new footprint deployments Also, the shares have rallied 40 percent over the past one year.

“[W]e see competition increasing, as Infinera returns to the mix with new products across metro, DCI and submarine markets, and Acacia Communications, Inc. (NASDAQ: ACIA) and others enable Ciena’s competition,” Clark added.

Shares of Infinera closed Wednesday’s trading at $10.35, Lumentum closed at $45.65 and Ciena at $23.74.

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