B. Riley Securities downgrades INFN to Neutral from Buy and raises their tgt to $11.50 from $10.50. Analyst Dave Kang noted, "We are downgrading Infinera (INFN) from Buy to Neutral based on valuation and various concerns. When we upgraded the stock to Buy in July 2019, one of the reasons was that it was trading at a 67% discount to Ciena (CIEN-Neutral, $51.50 PT), which we thought was excessive. Driven by improved fundamentals, INFN shares have risen 41% YTD versus Nasdaq's +40%, and as a result, INFN shares now trade at a 21% discount to CIEN. While there could be various reasons for the stock's recent surge (up 81% since early November versus Nasdaq's +16%), one of the reasons could be that the company may try to unlock the value of its DSP. Nevertheless, we believe this could be a case of being easier said than done. The company has potential catalysts in 800G and XR, but 800G may not ramp significantly until 2H21 while XR's future is still cloudy at this point. Meanwhile, our concerns are (1) 600G may not ramp as expected, and thus we may have to temper GM expansion expectations, (2) telco capex could be squeezed due to various factors, including the ongoing 5G spectrum auction, and (3) pluggables such as 400ZR/ZR+ could become a threat to its optical business. We have introduced our 2022 revenue/ EPS estimates of $1,577M/$0.39, and raised PT from $10.50 to $11.50, which is based on an unchanged EV/sales multiple of 1.6x our 2022 (2021 previously) revenue estimate minus net debt. A multiple of 1.6x represents a 20% discount to CIEN, which is the closest comp. We look to get constructive on the stock when valuation becomes more attractive and get more clarities on the aforementioned concerns."
B. Riley Securities downgrades INFN to Neutral from Buy and raises their tgt to $11.50 from $10.50. Analyst Dave Kang noted, "We are downgrading Infinera (INFN) from Buy to Neutral based on valuation and various concerns. When we upgraded the stock to Buy in July 2019, one of the reasons was that it was trading at a 67% discount to Ciena (CIEN-Neutral, $51.50 PT), which we thought was excessive. Driven by improved fundamentals, INFN shares have risen 41% YTD versus Nasdaq's +40%, and as a result, INFN shares now trade at a 21% discount to CIEN. While there could be various reasons for the stock's recent surge (up 81% since early November versus Nasdaq's +16%), one of the reasons could be that the company may try to unlock the value of its DSP. Nevertheless, we believe this could be a case of being easier said than done. The company has potential catalysts in 800G and XR, but 800G may not ramp significantly until 2H21 while XR's future is still cloudy at this point. Meanwhile, our concerns are (1) 600G may not ramp as expected, and thus we may have to temper GM expansion expectations, (2) telco capex could be squeezed due to various factors, including the ongoing 5G spectrum auction, and (3) pluggables such as 400ZR/ZR+ could become a threat to its optical business. We have introduced our 2022 revenue/ EPS estimates of $1,577M/$0.39, and raised PT from $10.50 to $11.50, which is based on an unchanged EV/sales multiple of 1.6x our 2022 (2021 previously) revenue estimate minus net debt. A multiple of 1.6x represents a 20% discount to CIEN, which is the closest comp. We look to get constructive on the stock when valuation becomes more attractive and get more clarities on the aforementioned concerns."