Has Wall Street gone a bit overboard punishing Acacia Communications (NASDAQ:ACIA)?
The fiber-optic component maker’s shares tumbled nearly 35% Monday following the news that The U.S. Department of Commerce has issued new sanctions to Chinese telecom equipment maker ZTE, banning U.S. companies from selling components to ZTE for a period of seven years after it was determined that ZTE violated terms of its 2017 settlement agreement with the department. Unfortunately for investors, ZTE accounted for 30% of Acacia’s revenue in 2017, according to the company’s most recent annual filing.
William Blair analyst Dmitry Netis noted, “The Chinese company pleaded guilty last year in federal court to illegally shipping U.S. goods and technology to Iran. It paid $890 million in fines and penalties. It also replaced its CEO and the four senior members of the executive team and allowed the Commerce Department to monitor its accounting systems. Perhaps there were other or bigger reasons behind the seven-year ban that were not mentioned in the Reuters article, but the new actions seem harsh at first blush, hurting equally the U.S. component companies betting on strong growth in China. New sanctions likely meant to get the point across to the Chinese company to follow up fully on its promise after the initial fines were paid out and management changes executed upon.”
The word on the Street rings largely bullish on this networking communications firm, with TipRanks analytics demonstrating ACIA as a Buy. Out of 11 analysts polled in the last 3 months, 7 are bullish on Acacia stock, 3 remain sidelined, and only one is bearish on the stock. With a return potential of nearly 68%, the stock’s consensus target price stands at $43.11.
Acacia develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. By leveraging silicon technology to build optical interconnects, a process Acacia Communications refers to as the “siliconization of optical interconnect,” Acacia Communications is able to offer products at higher speeds and density with lower power consumption, that meet the needs of cloud and service providers and can be easily integrated in a cost-effective manner with existing network equipment.