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NeoPhotonics Likely To Issue Solid Q1 Guidance, Says Bullish Rosenblatt

Priya Nigam

NeoPhotonics Corp (NYSE: NPTN) announced preliminary December quarter results Monday that include revenue and margins that are higher than its prior guidance.

Given a recent tender announcement by China Telecom (NYSE: CHA), NeoPhotonics will likely guide to above-normal seasonality for the March quarter, according to Rosenblatt Securities.

The Analyst

Analyst Jun Zhang maintained a Buy rating on NeoPhotonics with an unchanged $13 price target. 

The Thesis

NeoPhotonics shares came under pressure Monday, potentially due to news of China sentencing a Canadian drug dealer to death, Zhang said in the note.

This represents “only headline risk” and should be viewed independently of the Sino-American trade negotiations, the analyst said. 

Huawei will likely send another representative to deal with the U.S. lawsuit and its CFO Meng Wanzhou will likely be released, Zhang said. 

China’s operator spending on transmissions is likely to continue to grow, with 100G and Metro network upgrades scheduled for 2019, according to Rosenblatt. Capex and optical spending could get a boost in the back half of 2019 by way of 5G spending by China-based telecoms, the firm said. 

Along with preliminary fourth-quarter results, NeoPhotonics announced the termination of certain client transceiver modules.

The company will discontinue the manufacturing and sales of these products following the completion of the final production runs.

NeoPhotonics also plans to sell its manufacturing operations in Russia for book value. This will improve the company’s profitability in 2019 and beyond, Zhang said. 

Price Action

NeoPhotonics shares were trading up by 1.41 percent at $7.17 at the time of publication. 

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Latest Ratings for NPTN

Date Firm Action From To
Dec 2018 B. Riley FBR Downgrades Buy Neutral
Nov 2018 B. Riley FBR Maintains Buy Buy
Aug 2018 B. Riley FBR Upgrades Neutral Buy

View More Analyst Ratings for NPTN
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