Will Lower Revenues Dampen Finisar's (FNSR) Q2 Earnings?

Finisar Corporation (NASDAQ:FNSR) is scheduled to report second-quarter fiscal 2019 financial results (ended Oct 28, 2018) before the opening bell on Dec 3. In the last reported quarter, the company delivered a positive earnings surprise of 50%.

Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

Finisar maintains a leading position in supplying optical communications, providing components and subsystems to networking equipment manufacturers, data center operators, telecom service providers, consumer electronics and automotive companies. In its core business, the company expects to witness strong demand for ROADMs on a global basis with India and China beginning to deploy ROADMs in large volumes.

For the upcoming 5G transition for wireless, it is a leading supplier of the major OEMs of 25 gig and 100 gig data rates for both short and long-reach applications. The company is well positioned for the 100 gig to 400 gig transition in the enterprise and data center markets starting calendar year 2019.

During the second quarter of fiscal 2019, Finisar announced the sample availability of its new Flextune self-tuning feature for tunable Dense Wavelength-Division Multiplexing transceiver modules. Notably, Flextune is an automatic transceiver wavelength tuning feature that can minimize provisioning time and operating expenses.

For the second quarter, management expect revenues in the range of $315 million to $335 million primarily driven by strong demand for VCSEL arrays for 3D sensing applications in connection with the timing of product introductions, however partly offset by lower revenues associated with 10-gig and Ethernet transceivers. Furthermore, the company is making steady progress with many new VCSEL array customers for both consumer and automotive applications that will drive growth in this market segment.

For the quarter, the Zacks Consensus Estimate for total revenues stands at $328 million, down from $332 million reported in the year-earlier quarter. Adjusted earnings per share are projected at 21 cents, down from 23 cents reported a year ago.

What Our Model Says

Our proven model does not conclusively show a beat for Finisar this earnings season as it does not have the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Finisar’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 21 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Finisar Corporation Price and EPS Surprise

Zacks Rank: Finisar currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Casey's General Stores, Inc. (NASDAQ:CASY) has an Earnings ESP of +6.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lululemon Athletica Inc. (NASDAQ:LULU) has an Earnings ESP of +1.87% and a Zacks Rank #2.

FuelCell Energy, Inc. (NASDAQ:FCEL) has an Earnings ESP of +2.94% and a Zacks Rank #2.

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