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Minyan Mailbag: Breaking Down Infinera's Earnings

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Growth has been good, if inconsistent.

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Prof. Udall,

I've read your prior columns on Infinera (INFN), and was wondering what your thoughts are in light of the earnings report and subsequent downturn in the PPS.

Do you think this is an overreaction to the slight change in guidance? And, are you still positive on the company longer term?

Thanks. Any insight is greatly appreciated!
-Minyan GDL


MGDL,

I do think the selling is overdone and I'm back buying shares again under $13.

INFN is growing nicely but inconsistently. Plus, it isn't producing big EPS off this growth. Those are the two issues that make it hard for the typical analyst to award and defend a premium valuation.

What I think is that the stock was relatively cheap ahead of the call. However, I've been a cautious buyer, only buying on large pullbacks. Additionally, I think once INFN starts producing more standard financials as well as bringing more margin to the bottom line the stock could have significant outperformance.

Until then the upside catalysts will be the potential and/or closing of major wins (see recent BT Group (BT) news), industry end-market demand growth and continued acceptance of INFN's unique solution.

As a trader and investor in the fiber optics space for what seems like an eternity, the fickle and volatile nature of the group has always been evident and it seems INFN is destined to trade true to the group's form.

-Prof. Udall
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Position in INFN.

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