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Applied Optoelectronics: 2024 Should Be Strong But Downgrading On Valuation

After briefly dipping below $7 in late October, shares of Applied Optoelectronics Inc. have rallied by approximately 100% this month so far.With leading AI player and key customer Microsoft Corporatio

Applied Optoelectronics: 2024 Should Be Strong But Downgrading On Valuation

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":273145128657016,"tweetId":"273145128657016","gmtCreate":1707723679755,"gmtModify":1707723681113,"author":{"id":4096015652742090,"authorId":4096015652742090,"authorIdStr":"4096015652742090","name":"日内瓦喷泉","avatar":"https://static.tigerbbs.com/44849e13a0d986c7c7f06335ba754d82","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":8,"crmLevelSwitch":0,"individualDisplayBadges":[],"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"html":"<html><head></head><body>这篇文章不错，转发给大家看看</body></html>","htmlText":"<html><head></head><body>这篇文章不错，转发给大家看看</body></html>","text":"这篇文章不错，转发给大家看看","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/273145128657016","repostId":2386411995,"repostType":2,"repost":{"id":"2386411995","pubTimestamp":1701170021,"share":"https://www.laohu8.com/m/news/2386411995?lang=&edition=full","pubTime":"2023-11-28 19:13","market":"us","language":"en","title":"Applied Optoelectronics: 2024 Should Be Strong But Downgrading On Valuation","url":"https://stock-news.laohu8.com/highlight/detail?id=2386411995","media":"seekingalpha","summary":"After briefly dipping below $7 in late October, shares of Applied Optoelectronics Inc. have rallied by approximately 100% this month so far.With leading AI player and key customer Microsoft Corporatio","content":"<html><body><ul><li>After briefly dipping below $7 in late October, shares of <a href=\"https://laohu8.com/S/AAOI\">Applied Optoelectronics Inc.</a> have rallied by approximately 100% this month so far.</li><li>With leading AI player and key customer Microsoft Corporation trading at new all-time highs, shares of Applied Optoelectronics are back in the spotlight again.</li><li>Earlier this month, AOI reported third quarter results and provided fourth quarter guidance largely in line with consensus expectations. However, this was below my projections for a beat-and-raise quarter.</li><li>In combination with some anticipated headwinds from decreasing 100G product revenue going forward and assumptions for the company repaying the March convertible note maturity with cash raised from ongoing open market sales, I have decided to revise my aggressive assumptions for next year.</li><li>Consequently, I am downgrading the company's shares from \"Strong Buy\" to \"Hold\" while decreasing my price target from $22.50 to $15.00.</li></ul><figure><picture><img height=\"864px\" loading=\"lazy\" sizes=\"(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px\" src=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w750\" srcset=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1772548139/image_1772548139.jpg?io=getty-c-w240 240w\" width=\"1536px\"/></picture><figcaption>pingingz/iStock via Getty Images</figcaption></figure> Note: I have covered Applied Optoelectronics, Inc. (NASDAQ:AAOI) previously, so investors should view this as an update to my earlier articles on the company. A little over two months ago, I urged investors to buy shares of fiber-optic networking products provider Applied Optoelectronics, Inc. or \"AOI\" following a 40% retreat from its 52-week-high of $16.26 marked on August 24. While shares are up by close to 50% since that time, trading in the stock has been highly volatile. What at first appeared to be a well-timed call started to turn into a major nightmare over the month of October and I ultimately ended up being stopped out of a sizeable position at a major loss. However, after briefly dipping below $7 in late October, shares have regained their footing and rallied by approximately 100% this month so far, likely as a result of renewed strength in leading AI player and key customer Microsoft Corporation (MSFT). <figure contenteditable=\"false\"><picture><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/11/27/769697-17011235659600344.png\"/></picture><figcaption>Yahoo Finance</figcaption></figure> Earlier this month, AOI reported third quarter results and provided fourth quarter guidance largely in line with expectations: <figure contenteditable=\"false\"><picture><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/11/27/769697-17011236882968981.png\"/></picture><figcaption>Company Press Releases</figcaption></figure> That said, free cash flow was negative - a whopping $18.6 million almost solely due to a more than 40% sequential increase in accounts receivable as a result of massive growth in the company's Datacenter segment: <figure contenteditable=\"false\"><picture><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/11/27/769697-17011250220681455.png\"/></picture><figcaption>Company Press Releases</figcaption></figure> In Q3, Datacenter revenues contributed almost 80% of total sales. Within the Datacenter segment, both the company's 100G and 400G products experienced strong growth with the older 100G technology surprisingly still contributing the lion's share, as outlined by management on the conference call: <blockquote>In the third quarter, 74% of our data center revenue was from our 100G products, 13% was from our 200G and 400G transceiver products, and 7% was from our 40G transceiver products. Notably, revenue for our 100G products increased 75% sequentially, while revenue for our 400G products increased 74% sequentially and accounted for just under 11% of our total data center revenue in Q3.</blockquote> To compensate for the material cash outflows, AOI continued to sell shares into the open market under its recently expanded Equity Distribution Agreement with Raymond James (RJF): <figure contenteditable=\"false\"><picture><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/11/27/769697-17011261200300508.png\"/></picture><figcaption>Regulatory Filings / Q3 Conference Call Transcript</figcaption></figure> While the ongoing open market sales are diluting existing shareholders, I would actually like to see the company taking advantage of the most recent rally and raise as much cash as possible in order to prepare for an upcoming $80.5 million convertible debt maturity on March 15. However, even full utilization of the remaining $26.8 million available under the current Equity Distribution Agreement won't be sufficient to repay the convertible notes but the company has sufficient authorized shares to allow for further upsizing of the agreement. In addition, a $19.0 million revolving credit facility with a Chinese bank is scheduled to mature on May 24. Please note that the company decided to terminate the proposed $150 million sale of its Chinese manufacturing facilities to Yuhan Optoelectronic Technology (Shanghai) Co. or \"Yuhan\" after the buyer's alleged failure to meet agreed-upon deadlines resulted in AOI losing confidence in Yuhan's ability to complete the transaction, according to statements made by management on the conference call. Currently, the company is exploring additional options with new potential buyers while concurrently pursuing a $3 million breakup fee from Yuhan. For the fourth quarter, the company expects 400G product contribution to increase, partially due to earlier-than-expected product shipments under the recently-announced supply agreements with core customer Microsoft Corporation (MSFT) for next generation lasers and active optical cables: <blockquote> As a reminder, as we have discussed on our prior couple of earnings calls, we signed two agreements with Microsoft earlier this year, including a development program to make next-generation lasers for its data center, both for 400G and beyond, and for the development of their 400G and next-generation active optical cables. While not guaranteed, we continue to believe that the revenue opportunity for our 400G and 800G products could be greater and a longer duration than the revenue contribution we saw from this customer during the peak of the 40G product cycle, which suggests that revenue from these products may exceed $300 million over the several years of these build-outs. During the quarter, we received requests from Microsoft to expedite our production ramp for these products, which we are attempting to accommodate. Based on these expedite requests, we believe demand for these products remains strong, and our production teams are working very hard to add capacity for this production, which we now expect will allow us to begin shipments later this month, rather than in late December as originally planned. </blockquote> With revenues under the new supply agreements with Microsoft likely to ramp over the course of 2024 and commercial shipments of the company's new 800G products also expected for next year, 2024 is likely to be a huge year for Applied Optoelectronics. However, these expectations are already very much reflected in current consensus estimates which call for an almost 60% year-over-year revenue increase and substantial profitability next year: <figure contenteditable=\"false\"><picture><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2023/11/27/769697-17011314962214906.png\"/></picture><figcaption>Seeking Alpha</figcaption></figure> Remember, my original investment thesis was based on even more aggressive growth and profitability assumptions as well as the convertible bonds being converted to equity at a conversion price of $17.55 per share in March. While still a distinct possibility, I have decided to take a more conservative stance and now expect the convertible notes to be repaid with cash raised from ongoing open market sales. In addition, I would assume the projected sales growth to require additional working capital. Depending on the average sales price, I wouldn't be surprised to see outstanding shares increasing by more than 25% to approximately 45 million by the end of Q1/2024. Please note also that the company's in-line quarter and guidance was below my beat-and-raise expectations. In addition, I was surprised by the revenue mix still being heavily-weighted towards legacy 100G technology which is likely to provide a headwind going forward. As a result, I am now projecting 2024 revenues of approximately $400 million and earnings per share (\"eps\") of $0.75 which is still above the high-end of current consensus expectations but substantially below my previous forecast for earnings potentially approaching $1.50 per share next year. Even when applying a P/E ratio more in line with industry peers of 20x my 2024 eps forecast, the resulting price target of $15 only provides for marginal upside from current share price levels. <h2>Bottom Line</h2> With leading AI player and key customer Microsoft's stock having rallied to new all-time highs in recent weeks, Applied Optoelectronics Inc.'s shares are red hot again. While I still expect 2024 to be a year of strong growth and meaningful profitability for AOI, the company's Q3 results and Q4 guidance came in below my aggressive expectations. In combination with some anticipated headwinds from decreasing 100G product revenue going forward and assumptions for the company repaying the March convertible note maturity with cash raised from ongoing open market sales, I have decided to revise my aggressive projections for next year. <div></div> Consequently, I am downgrading the company's shares from \"Strong Buy\" to \"Hold\" while decreasing my price target from $22.50 to $15.00.</body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Applied Optoelectronics: 2024 Should Be Strong But Downgrading On Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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However, this was below my projections for a beat-and-raise quarter.In combination with some anticipated headwinds from decreasing 100G product revenue going forward and assumptions for the company repaying the March convertible note maturity with cash raised from ongoing open market sales, I have decided to revise my aggressive assumptions for next year.Consequently, I am downgrading the company's shares from \"Strong Buy\" to \"Hold\" while decreasing my price target from $22.50 to $15.00.pingingz/iStock via Getty Images Note: I have covered Applied Optoelectronics, Inc. (NASDAQ:AAOI) previously, so investors should view this as an update to my earlier articles on the company. A little over two months ago, I urged investors to buy shares of fiber-optic networking products provider Applied Optoelectronics, Inc. or \"AOI\" following a 40% retreat from its 52-week-high of $16.26 marked on August 24. While shares are up by close to 50% since that time, trading in the stock has been highly volatile. What at first appeared to be a well-timed call started to turn into a major nightmare over the month of October and I ultimately ended up being stopped out of a sizeable position at a major loss. However, after briefly dipping below $7 in late October, shares have regained their footing and rallied by approximately 100% this month so far, likely as a result of renewed strength in leading AI player and key customer Microsoft Corporation (MSFT). Yahoo Finance Earlier this month, AOI reported third quarter results and provided fourth quarter guidance largely in line with expectations: Company Press Releases That said, free cash flow was negative - a whopping $18.6 million almost solely due to a more than 40% sequential increase in accounts receivable as a result of massive growth in the company's Datacenter segment: Company Press Releases In Q3, Datacenter revenues contributed almost 80% of total sales. Within the Datacenter segment, both the company's 100G and 400G products experienced strong growth with the older 100G technology surprisingly still contributing the lion's share, as outlined by management on the conference call: In the third quarter, 74% of our data center revenue was from our 100G products, 13% was from our 200G and 400G transceiver products, and 7% was from our 40G transceiver products. Notably, revenue for our 100G products increased 75% sequentially, while revenue for our 400G products increased 74% sequentially and accounted for just under 11% of our total data center revenue in Q3. To compensate for the material cash outflows, AOI continued to sell shares into the open market under its recently expanded Equity Distribution Agreement with Raymond James (RJF): Regulatory Filings / Q3 Conference Call Transcript While the ongoing open market sales are diluting existing shareholders, I would actually like to see the company taking advantage of the most recent rally and raise as much cash as possible in order to prepare for an upcoming $80.5 million convertible debt maturity on March 15. However, even full utilization of the remaining $26.8 million available under the current Equity Distribution Agreement won't be sufficient to repay the convertible notes but the company has sufficient authorized shares to allow for further upsizing of the agreement. In addition, a $19.0 million revolving credit facility with a Chinese bank is scheduled to mature on May 24. Please note that the company decided to terminate the proposed $150 million sale of its Chinese manufacturing facilities to Yuhan Optoelectronic Technology (Shanghai) Co. or \"Yuhan\" after the buyer's alleged failure to meet agreed-upon deadlines resulted in AOI losing confidence in Yuhan's ability to complete the transaction, according to statements made by management on the conference call. Currently, the company is exploring additional options with new potential buyers while concurrently pursuing a $3 million breakup fee from Yuhan. For the fourth quarter, the company expects 400G product contribution to increase, partially due to earlier-than-expected product shipments under the recently-announced supply agreements with core customer Microsoft Corporation (MSFT) for next generation lasers and active optical cables: As a reminder, as we have discussed on our prior couple of earnings calls, we signed two agreements with Microsoft earlier this year, including a development program to make next-generation lasers for its data center, both for 400G and beyond, and for the development of their 400G and next-generation active optical cables. While not guaranteed, we continue to believe that the revenue opportunity for our 400G and 800G products could be greater and a longer duration than the revenue contribution we saw from this customer during the peak of the 40G product cycle, which suggests that revenue from these products may exceed $300 million over the several years of these build-outs. During the quarter, we received requests from Microsoft to expedite our production ramp for these products, which we are attempting to accommodate. Based on these expedite requests, we believe demand for these products remains strong, and our production teams are working very hard to add capacity for this production, which we now expect will allow us to begin shipments later this month, rather than in late December as originally planned. With revenues under the new supply agreements with Microsoft likely to ramp over the course of 2024 and commercial shipments of the company's new 800G products also expected for next year, 2024 is likely to be a huge year for Applied Optoelectronics. However, these expectations are already very much reflected in current consensus estimates which call for an almost 60% year-over-year revenue increase and substantial profitability next year: Seeking Alpha Remember, my original investment thesis was based on even more aggressive growth and profitability assumptions as well as the convertible bonds being converted to equity at a conversion price of $17.55 per share in March. While still a distinct possibility, I have decided to take a more conservative stance and now expect the convertible notes to be repaid with cash raised from ongoing open market sales. In addition, I would assume the projected sales growth to require additional working capital. Depending on the average sales price, I wouldn't be surprised to see outstanding shares increasing by more than 25% to approximately 45 million by the end of Q1/2024. Please note also that the company's in-line quarter and guidance was below my beat-and-raise expectations. In addition, I was surprised by the revenue mix still being heavily-weighted towards legacy 100G technology which is likely to provide a headwind going forward. As a result, I am now projecting 2024 revenues of approximately $400 million and earnings per share (\"eps\") of $0.75 which is still above the high-end of current consensus expectations but substantially below my previous forecast for earnings potentially approaching $1.50 per share next year. Even when applying a P/E ratio more in line with industry peers of 20x my 2024 eps forecast, the resulting price target of $15 only provides for marginal upside from current share price levels. Bottom Line With leading AI player and key customer Microsoft's stock having rallied to new all-time highs in recent weeks, Applied Optoelectronics Inc.'s shares are red hot again. While I still expect 2024 to be a year of strong growth and meaningful profitability for AOI, the company's Q3 results and Q4 guidance came in below my aggressive expectations. In combination with some anticipated headwinds from decreasing 100G product revenue going forward and assumptions for the company repaying the March convertible note maturity with cash raised from ongoing open market sales, I have decided to revise my aggressive projections for next year. Consequently, I am downgrading the company's shares from \"Strong Buy\" to \"Hold\" while decreasing my price target from $22.50 to $15.00.","news_type":1},"isVote":1,"tweetType":1,"viewCount":267,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":27,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}