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Why NeoPhotonics Stock Jumped 10.2% Today

What happened

Shares of NeoPhotonics (NYSE: NPTN) closed Monday's trading session 10.2% higher, having soared as much as 10.7% earlier in the day. The maker of lasers and optoelectronic components for use in high-speed networking systems published preliminary third-quarter results and outlined an ambitious cost-cutting program.

So what

NeoPhotonics tightened its third-quarter revenue outlook around the $102 million mark, up from $101 million in the existing guidance and 10% above the year-ago period's sales of $92.4 million. On the bottom line, management now expects adjusted earnings of roughly $0.12 per share, near the top end of the previous guidance range that was centered at $0.08 per share. In the third quarter of 2019, NeoPhotonics reported adjusted earnings of $0.11 per share. The new targets also exceed the current Street views, as your average analyst would have settled for earnings near $0.09 per share on revenues in the neighborhood of $101 million.

Image source: Getty Images.

Now what

The cost-cutting program involves a 4% reduction in NeoPhotonics' workforce, a tighter focus on next-generation networking lasers, and the closure of one of the company's two indium phosphide manufacturing lines. These actions and projections assume no orders from Chinese networking giant Huawei. The revamped operating structure should result in more efficient use of the company's assets and lower NeoPhotonics' operating costs by approximately $2 million per quarter, starting in the second quarter of 2021.

"With these changes, we continue to pursue growth opportunities and deploy our best-in-class products and solutions for the highest-speed-over-distance applications, and with a more diverse customer set," CEO Tim Jenks said in a prepared statement.

After Monday's solid jump, NeoPhotonics' shares still trade 36% below their annual highs. Trading at 18 times trailing earnings and just 6.2 times free cash flows, the stock looks very affordable right now.

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Anders Bylund owns shares of NeoPhotonics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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