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Why Are the Analysts Getting It Wrong on Finisar and the Optical Networking Sector?

the Editors

Covering analysts were taken by surprise when fiber optics company Finisar (NASDAQ: FNSR - News) recently provided lower-than-consensus earnings guidance for its fiscal Q4 2012 (April-ending quarter). Next Inning Technology Research readers, however, knew exactly what to expect. Editor Paul McWilliams, whose Next Inning model portfolio has returned close to 300% since inception, not only advised prior to the quarterly report that Finisar's earnings guidance would indeed be lower that analysts were projecting, he also explained exactly why this would be the case.

McWilliams has kept Next Inning readers ahead of the curve regarding Finisar ever since the company began staging its bold turnaround in mid-2009. When he suggested buying then, the stock was trading for less than $5. By hedging with covered calls that extracted roughly 100% of the original cash price, he was able to guide readers to an unbelievable return on invested capital when the stock peaked in early 2011 above $40.

On February 27th, two days before Finisar reported results for its January-ending quarter and provided updated guidance (and with the stock sitting at above $23), McWilliams informed his readers of the specific dynamics that would lead to the "shortfall" in earnings guidance for the April ending quarter. He also advised that investors "building a position in Finisar should set aside some cash to buy on weakness." Finisar's price opened in the $18s the day following the release of guidance and as of March 5th closed at $18.90.

"I wrote that Finisar would report a sequential drop in gross profit," McWilliams said "Finisar had projected such a decline, but covering analysts chose to ignore the information. The analysts got it wrong, but as I also suggested, Finisar is now taking a beating. That is providing some investment opportunity in a stock I believe will see accelerated growth in the second half of the year."

Part of McWilliams' analysis is to provide readers with valuations for the more than 75 stocks he covers. McWilliams sphere of coverage spans from semiconductor manufacturing to OEM products and, of course, includes in-depth coverage of the fiber optics sector - a sector he says will see solid demand growth beginning in the second half of 2012. For Finisar he has established a three- to six-month estimated target range that suggests investors buying at its current sub-$19 price could see significant profits in the near term.

Next Inning free trial subscribers will have immediate access to McWilliams' comments on where he believes Finisar is headed next. In addition to this, you'll get full access to his commentary about Finisar's competitors, including JDS Uniphase (NASDAQ: JDSU - News), Oclaro Inc (NASDAQ: OCLR - News) and Opnext (NASDAQ: OPXT - News).

The Next Inning model portfolio is up 19% year to date versus 7% for the S&P 500. Click here to start your free 21-day trial membership to Next Inning Technology Research and get McWilliams' in depth reports, earnings previews, and real-time trade alerts.