Bullish indicating open at $55-$60, IPO prices at $37
On Tuesday, JPMorgan analysts adjusted their outlook on Fabrinet (NYSE:FN), increasing the price target to $235 from the previous $220 while maintaining a Neutral rating on the company’s shares. The revision follows Fabrinet’s recent financial results, which surpassed expectations. According to InvestingPro data, the company maintains excellent financial health with an overall score of 3.8/5, supported by strong revenue growth of 14.83% over the last twelve months. While the factors contributing to this performance are not traditionally viewed as indicators of sustained growth, the company’s robust balance sheet shows more cash than debt.
The company experienced a surge in Telecom (BCBA:TECO2m) revenues, attributed to direct current interconnect (DCI) demand, new contracts, and a cyclical recovery in demand. Meanwhile, the Automotive sector, which has seen strong performance in recent quarters, is expected to see a deceleration in growth. On the other hand, Datacom revenues have seen a decline, disappointing for another consecutive quarter. InvestingPro analysis reveals that while the company suffers from weak gross profit margins of 12.27%, it maintains strong operational efficiency with a return on equity of 19%. This downturn is partly due to a shift to next-generation 1.6T products for a primary customer and a potential decrease in market share allocation related to 800G shipments.
However, Fabrinet is the initial sole supplier for the 1.6T products, and with increased visibility into volume ramp-up, the company anticipates quarter-over-quarter revenue growth in Datacom for the fourth fiscal quarter of 2025. Fabrinet’s prospects are also bolstered by new contracts with Ciena (NYSE:CIEN) and Amazon (NASDAQ:AMZN), positioning the company for strong revenue growth in the fiscal year 2026, ending in June.
The company is contemplating accelerating its expansion plans, including the development of Building 10 at its Chonburi location, in response to the evolving composition of its revenue sources. Despite the different revenue drivers in the quarter, analysts expect the continued ramp-up in Telecom and a resurgence in Datacom to support their previous revenue expectations. These projections include 11% year-over-year growth for the fiscal year 2026 and 9% for the fiscal year 2027.
JPMorgan’s revised price target reflects a higher target multiple of 19 times, up from 18 times, as Fabrinet progresses with its Datacom revenue. The analysts’ earnings outlook remains largely unchanged, anticipating that any dip in gross margins due to ramp costs for new contracts will be temporary. Based on InvestingPro Fair Value calculations, the stock appears fairly valued at current levels. Subscribers can access 12 additional ProTips and a comprehensive analysis of Fabrinet’s financial health, growth prospects, and valuation metrics in the Pro Research Report, available exclusively to members.
In other recent news, Fabrinet reported its third quarter financial results, revealing a mixed performance. The company achieved revenue of $871.8 million, which exceeded analyst expectations of $858.3 million and marked a 19.2% increase year-over-year. However, Fabrinet’s adjusted earnings per share of $2.52 fell short of the consensus forecast of $2.54. The company attributed the earnings miss to higher costs affecting profitability. Looking ahead, Fabrinet projects fourth quarter revenue between $860 million and $900 million, compared to the analyst consensus of $885.8 million, and adjusted earnings per share in the range of $2.55 to $2.70, against expectations of $2.65. CEO Seamus Grady expressed optimism about the company’s future performance, highlighting strong telecom sector growth. Despite the earnings miss, management remains confident in their ability to execute strongly in the upcoming quarters. These developments reflect Fabrinet’s ongoing efforts to balance revenue growth with cost management.
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