Earnings Cheat Sheet: Finisar (FNSR) Blows Past Estimates, Reaches All-Time Highs

Finisar Corp. (NASDAQ: FNSR) is the second largest provider of fiber-optic equipment, lagging behind only JDS Uniphase (NASDAQ: JDSU) in terms of total output.  The company sports a $1.8 billion market cap and is trading at all-time highs.  Shares are up 170% on the year.

Earnings: 2Q profits of $33.8 million ($0.39/share) vs. a 2Q09 loss of $31.5 million ($0.49/share).  Excluding one-time and non-recurring items, EPS rose to $0.44 from $0.31.

Revenue: Up 65% to $240.9 million.

Actual vs. Wall St. Expectations: FNSR beat the street by a nice margin in terms of both EPS and revenue, as analysts were expecting the company to report $0.38/share on $229.7 million.

Notable Stats: 3Q10 EPS guidance of $0.45-$0.47 came in ahead of analyst expectations of $0.41.  Revenue guidance of $247-$262 million also beat expectations of $240.5 million.

Compared against FNSR’s last Q’s results, sales of 10 Gbps or faster products increased $13.3 million, or 14.1%; sales of less than 10 Gbps products increased $12.1 million, or 15.4%; sales of ROADM related products increased $8.3 million, or 27.3%; and sales of products for analog and cable television applications decreased $0.7 million, or 15.6%.

Gross margin rose to 34.2% from 27.3%.

Did You Hear That? FNSR Chairman Jerry Rawls stated during the conference call that, “in our just completed second quarter, we reached our previously announced target for [a] non-GAAP operating margin of 17.0%, upwardly revised just last quarter, substantially earlier than we had predicted.  Achieving this level of operating margin was driven by our strong revenue growth combined with minimal increases in operating expenses…we achieved new company records for quarterly revenues, operating income and net income.”

Furthermore, CEO Eitan Gertal noted that, “the market environment continued to be very strong for Finisar, driven by increased demand for a broad range of LAN/SAN and metro/telecom products.  The company continued to gain market share, including in the WSS/ROADM line card segment where revenues grew 27.3% over the previous quarter.  We expect revenues for WSS/ROADM line cards to grow another 20% to 30% sequentially in our fiscal third quarter.”

Technicals: Turns out FNSR’s brief penetration of its 40-week moving average was a great buying opportunity, as shares have rallied over 60% in the 5 weeks since.  Shares are now more extended past their 10- and 40-week lines than they have been in a good deal of time.  5+ month basing periods in late-2009 and mid-2010 helped stabilize FNSR’s chart, and while a pullback towards $21.60 may be reasonable, there is good reason to believe that shares will remain at or above the levels of their most recent breakout.

Commentary: FNSR is pumping on all cylinders.  The company is keyed-in to the readily identifiable growth theme of the wireless backhaul story and continues to execute at the top of it’s class.  Those who bought shares on dips recently deserve a nice pat on the back, but the run in shares is likely not over.  As mentioned above, a brief pullback may make some sense here, and one can easily envision such an occurrence during the next spat of market weakness, but stay on your toes, as shares have a tendency to regain lost ground at a dizzying pace.

Disclosure: No holdings in FNSR.