When looking at today’s seesaw needle-movers, Acacia Communications, Inc. (NASDAQ:ACIA) shares are on a downturn almost as rapid-fire as RH (NYSE:RH) shares are on a quick rise. Interestingly enough, analysts have the opposite perspective of investors, with William Blair assured that Acacia shares will make a comeback from a surprising first-quarter guidance flop and Oppenheimer staunchly cautious even when confronting a preliminary fourth-quarter earnings beat. Let’s explore:
Acacia Shares Have Room For Upside Despite Weak Guidance
Acacia shares are tumbling almost 14% on back of the networking company’s fourth-quarter results. While earnings beat the Street, the shocker came down to first quarter outlook for 2017, which marked a multi-million-dollar miss. Though William Blair analyst Dmitry Netis was taken off guard by the weakness in guidance, he nonetheless remains on the bullish train for the company, reiterating an Outperform rating on ACIA without listing a price target.
For the fourth quarter, revenue outperformed consensus by a hefty $3 million and EPS by $0.14, which the analyst attributes to stellar strength in China, DCI/metro, as well as new customers. However, the Achilles’ heel of the results lies in the guidance, which underperformed by walloping $26 million, with EPS coming up short by $0.12.
As far as Netis sees the miss, “The crux of the weaker first-quarter guide a likely a follow-through from a large DCI customer (which we note with high degree of certainty is ADVA), which declined 37.5% sequentially in the fourth quarter. Management noted material slowdown in orders from this customer due to weakness from cloud operators and internet content providers (ICPs), which tend to have lumpy spending patterns. The good news is that capex from the ICPs remains robust (we count nine new mega data centers being built this year from top five hyperscale operators), with management still projecting healthy growth in 2017, noting its expectation of share gains in coherent 100G market, but stopping short of its previous remarks of growing along with the market, which has an implied growth rate of 30%.”
“As for the ADVA issue specifically, we see it as an air pocket largely based on $30 million downtick in revenue in December and $20 million in inventory build-up, which likely snaps back in 2017,” Netis surmises.
Confident on the company’s continual capture of the market share thanks to its standout technology and gross margins that are leading the industry, the analyst notes that ADVA anticipates better visibility for the next quarter and maintains confidence in the stock.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Dmitry Netis is ranked #334 out of 4,499 analysts. Netis has a 57% success rate and yields 9.8% in his yearly returns. However, when recommending ACIA, Netis loses 2.2% in average profits on the stock.
TipRanks analytics exhibit ACIA as a Strong Buy. Based on 4 analysts polled by TipRanks in the last 3 months, all 4 rate a Buy on ACIA stock. The 12-month average price target stands at $101.67, marking an 84% upside from where the stock is currently trading.
RH: Oppenheimer is Staying on the Sidelines and Advises Investors to Follow Suit
RH shares are racing 28% on the heels of the luxury furniture retailer releasing preliminary financial results for its fourth-quarter, with an impending print due April 4th. Though investors are backing Restoration Hardware with excitement and momentum today, though encouraged, the initial numbers are not enough to sway Oppenheimer analyst Brian Nagel away from the sidelines.
As such, the analyst reiterates a Perform rating on shares of RH without suggesting a price target.
For the fourth quarter, compared to EPS of $0.98 from last year, adjusted earnings take a 30% step back to $0.68. However, shares likely are surging today in light of EPS falling in range of management’s expectations for guidance of $0.60 to $0.70 while also beating the Street’s forecast of $0.65. The analyst points out, “Better than feared sales and margins drove earnings toward the higher end of management’s expected range.”
Meanwhile, it makes sense that adjusted revenues have dipped from $647 million from last year to $590 million considering RH had warned of “general softness” circling the presidential election as well as sluggish in-home arrivals from the fall Source Book. However, revenues do fall in-line with management’s guided fall to $562 million to $592 million, and the result outclasses the Street’s $585 million. Adjusted gross margins this quarter sank 100 bps to 34.6%, which though marks a step down from last year’s 35.6% is better than the Street’s guidance for a 150 bps decline.
Nagel comments, “As we examine recent trends at RH, we come away comforted somewhat that sales and EPS in Q4 could have been worse, but still quite skeptical toward the potential for a significant profit rebound at the chain in 2017. In essence, in Q4, RH performed ‘OK’ against very dampened expectations. It also announced a $300M share buyback. We understand the positive optics of such a move, but would prefer the company invest in growth or at least stay as liquid as possible during its significant store transition.”
Furthermore, the analyst ultimately fears the Street’s expectations remain overly lofty. “RH did not outline new FY17 guidance with last night’s announcement. We view risks to current sales and EPS forecasts as weighted to the downside and advise clients to remain on the sidelines,” Nagel concludes.
According to TipRanks, four-star analyst Brian Nagel is ranked #1,182 out of 4,499 analysts. Nagel has a 53% success rate and realizes 2.5% in his annual returns. When recommending RH, Nagel earns 0.0% in average profits on the stock.
TiupRanks analytics indicate RH as a Buy. Out of 11 analysts polled by TipRanks in the last 3 months, 4 are bullish on RH stock and 7 remain sidelined. With a return potential of nearly 18%, the stock’s consensus target price stands at $37.86.