On Wednesday, B.Riley adjusted its stance on Infinera Corp . (NASDAQ:INFN), downgrading the stock from Buy to Neutral while keeping the price target steady at $6.65. The downgrade follows Infinera's third-quarter earnings release, which fell short of market expectations. Infinera reported quarterly sales of $354.4 million and a break-even EPS, missing the consensus estimates of $413 million in sales and an EPS of $0.07.
Infinera, which is currently in the midst of an acquisition by Nokia (HE:NOKIA) (NYSE:NOK) for $6.65 per share, did not hold a conference call in light of the pending transaction. The company's revenue decreased by 9.7% year-over-year but saw a 3.4% rise quarter-over-quarter.
This increase was attributed primarily to a 16% quarterly growth in the Internet Content Provider (ICP) segment, which reached $145.4 million. However, Tier-1 Service Provider revenue dropped by 9% from the previous quarter, while revenue from Other Service Providers climbed by 4%.
Despite the mixed financial results, Infinera has continued to perform well in securing design wins, indicating strong momentum across various verticals, including ICPs. The company's gross margin (GM) saw a slight improvement, rising 10 basis points quarter-over-quarter to 40.4%. B.Riley holds the view that Infinera's gross margin could remain at 40% or above in the future.
Reflecting on Infinera's future prospects, B.Riley has revised its EPS estimates for the years 2024 and 2025. The firm now expects an EPS of $(0.18) in 2024, down from the previous estimate of $(0.10), and projects a negative EPS of $(0.17) for 2025, a shift from the earlier anticipated $0.27.
The maintained price target of $6.65 is based on an enterprise value to sales multiple of 1.53 times, up from 1.46 times, applied to B.Riley's 2025 revenue estimate less net debt, aligning with Nokia's offer price for the company.
InvestingPro Insights
Infinera's recent performance and future outlook can be further illuminated by data from InvestingPro. The company's market capitalization stands at $1.58 billion, reflecting its current position in the market. Despite the recent downgrade and missed earnings expectations, InvestingPro data shows that Infinera has demonstrated a strong return over the last year, with a remarkable 115.06% price total return over the past 12 months.
However, it's important to note that Infinera has not been profitable over the last twelve months, as indicated by its negative P/E ratio of -16.88. This aligns with B.Riley's revised EPS estimates for 2024 and 2025, which project continued losses. On a more positive note, an InvestingPro Tip suggests that analysts predict the company will be profitable this year, which could signal a potential turnaround.
Another InvestingPro Tip highlights that Infinera is trading near its 52-week high, with its current price at 96.97% of the 52-week high. This strength in stock performance, despite recent financial challenges, may reflect investor optimism about the pending acquisition by Nokia.
For readers interested in a deeper analysis, InvestingPro offers 11 additional tips for Infinera, providing a more comprehensive view of the company's financial health and market position.
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