The U.S. government
banned U.S.-based telecom companies from selling hardware and software components to the Chinese company ZTE for seven years.
The announcement had a ripple effect across the entire optics sector and could
even trigger industrywide consolidation, according to Northland Capital Markets.
The Analyst
Northland Capital Markets' Tim Savageaux commented in a Tuesday
note on the optical and communications industry.
The Thesis
Among the most compelling opportunities for investors amid an industrywide selloff is
Oclaro Inc (NASDAQ: OCRL), given the arbitrage
spread in Tuesday's closing price of $8.39 and Lumentum Holdings Inc (NASDAQ: LITE)'s acquisition offer of $9.32, Savageaux said in a Tuesday note. (See the
analyst's track record here.)
The 10-percent decline in Lumentum's stock now implies it is trading at a "very attractive" single-digit PE multiple despite
boasting strong 3-D sensing drivers, the analyst said.
The sell-off seen in Acacia Communications, Inc. (NASDAQ: ACIA) is "overdone by as much as a factor of 2," Savageaux said. An acquisition of
Acacia would be accretive to a potential buyer like Finisar Corporation (NASDAQ: FNSR) and could be the only path toward realizing value, he said.
Finisar could make use of its more than $1 billion in cash and offer $35 to acquire Acacia in a 70-30 cash-and-stock deal, the
analyst said. This would generate approximately the same level of accretion as the $6 EPS that is likely to occur from the Lumentum
and Oclaro deal.
Price Action
Shares of Oclaro were trading higher by 0.72 percent early Wednesday morning, while shares of both Acacia and Finisar were
higher by about 1 percent each.
Related Links:
Analyst:
Acacia Will Be Hurt By ZTE Ban, Others Will Win
Craig-Hallum:
Lumentum's Oclaro Purchase Could Trigger Further M&A In Optical Sector
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.