Bullish indicating open at $55-$60, IPO prices at $37
On Friday, B.Riley analyst Dave Kang changed the investment firm’s stance on Fabrinet (NYSE:FN), upgrading the company’s stock rating from Sell to Neutral while slightly reducing the price target to $176 from $178. The stock, which InvestingPro analysis suggests is currently undervalued, has declined 21.5% year-to-date, outpacing the Nasdaq’s 14% decrease. With a P/E ratio of 19.2x and strong financial health metrics, the current price level has attracted attention from value investors.
Kang’s commentary highlighted concerns about Fabrinet’s 800G product sales to Nvidia (NASDAQ:NVDA), indicating potential risks as hyperscale companies may opt to purchase transceivers directly as opposed to through Nvidia. This shift could place pressure on Fabrinet’s sales in this segment. However, the company maintains a strong financial position with a current ratio of 3.32x and negligible debt, providing flexibility to navigate market challenges. According to InvestingPro, which offers 18 additional insights about FN’s financial health, the company has been actively buying back shares, demonstrating management’s confidence in the business.
The analyst also pointed to the uncertainties surrounding tariffs, noting that the current tariff rate for Thailand, where Fabrinet operates, stands at 36%. This issue is not exclusive to Fabrinet, as several of its main competitors in the transceiver market, such as Innolight, Eoptolink, and Lumentum (NASDAQ:LITE – rated Neutral with a $75 price target), also have manufacturing facilities in Thailand. The impact of these tariffs on customer and supplier strategies is yet to be determined.
Despite these challenges, B.Riley believes that the risks may already be reflected in Fabrinet’s current stock price. The company’s revenue growth of 14.8% in the last twelve months and projected earnings of $10.41 per share for fiscal 2025 suggest continued momentum. Additionally, the firm anticipates that Fabrinet could benefit from several positive catalysts, including an uptick in telecom demand, which may help mitigate the aforementioned risk factors. For a comprehensive analysis of Fabrinet’s growth prospects and valuation metrics, investors can access the detailed Pro Research Report available on InvestingPro.
In other recent news, Fabrinet announced a revision to its third-quarter earnings guidance, now expecting adjusted earnings per share (EPS) to range from $2.43 to $2.51, down from the previous forecast of $2.55 to $2.63. This adjustment follows a strategic agreement with Amazon (NASDAQ:AMZN), which includes the issuance of a warrant allowing Amazon to purchase up to 381,922 shares of Fabrinet at a set price. The warrant issuance results in a non-cash stock-based accounting adjustment of approximately $4.2 million to revenue, impacting net income per fully diluted share by about $0.12. Despite the revised earnings outlook, the deal with Amazon is seen as a significant move that may enhance Fabrinet’s industry position.
In related developments, the company anticipates its GAAP net income per share to be between $2.20 and $2.28 for the quarter. The strategic agreement with Amazon involves customary registration rights and an agreement for Fabrinet to notify Amazon in advance of certain acquisition transactions. Analysts note that this move reflects current expectations but also highlight potential risks and uncertainties that could affect actual results. These recent developments provide investors with insight into Fabrinet’s strategic direction and financial adjustments.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.