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Fun With Finisar

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Merger, settlement bode well for technology player.

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Barron's just ran a piece on Finisar (FNSR). The article offered solid analysis of the synergies of the Optimum (OPTM) merger and modestly bullish talk from the analysts quoted within.

I'm quite a bit more bullish on my longer-term price target than those cited in Barron's. My fair value on Finisar is two times sales, implying a stock price of approximately $2.90. Using the conversion ratio, this would put Optimum at $18.15.

Additionally, both companies just guided higher for the coming quarter. If the combined entity's sales see a marginal uptick from current levels and margins improve, my fair value estimate could be surpassed.

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Finisar has also been engaged in a drawn out legal battle against DirecTV (DTV) that centers on a patent dispute.

The company had won the case with a verdict that awarded slightly in excess of $100 million (a large sum given its market cap). Later, a federal court overturned the damages, but asserted that six of Finisar's seven claims were still valid.

Now, a lower court will make a new assessment of damages. In the meantime, Finisar could try to work out a settlement. It's difficult to accurately predict an amount, but the potential remains for the company to be granted material damages that will bolster its cash and balance sheet.

Position in FNSR, OPTM

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