Bank of America's Tal Liani downgraded Acacia Communications from Neutral to Underperform with an unchanged $37 price target.
Acacia's status as a technical leader in the optical space remains unchanged but the stock's 60-percent gain since the ZTE export ban in April implies the potential for underperformance versus its peers, Liani said in a note. In fact, at its current valuation the company's high customer concentration risk in China is a concern at 39 percent of 2017 sales.
Acacia's core 100G market is a lot more saturated and competitive today than it has been in the earlier stages of the cycle, the analyst said. The company may be in the early stages of lowing market share within the lower-end pluggables.
On the other hand, there are some positives to Acacia's story. This includes management's expectation for revenue to improve with ZTE from $4 million in the second quarter to $14 million in the third quarter without any "catch-up spending," the analyst said. The second quarter was the best ever in terms of revenue diversification and excluding top four customers revenue did grow by 34 percent from a year ago and 29 percent from the prior quarter.
Nevertheless, the more competitive landscape and premium valuation to the group warrants a bearish rating at this time.
Shares of Acacia were trading lower by more than 6 percent Friday at $38.78.
Morgan Stanley's Guide On How To Play The Optical Space
Acacia Communications Investors 'Stuck With A Bad Hand,' Says Morgan Stanley
Latest Ratings for ACIA
|Aug 2018||Bank of America||Downgrades||Neutral||Underperform|
|Jun 2018||Bank of America||Maintains||Neutral||Neutral|
View More Analyst Ratings for ACIA
View the Latest Analyst Ratings
See more from Benzinga
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.