Fabrinet Stock Plummets 9% After Downgrade by B. Riley

Fabrinet experiences significant sell-off following B. Riley's downgrade from neutral to sell and a reduction in its price target. Analysts predict challenges ahead due to potential loss of bundling with Nvidia products, impacting revenue growth projections.

Date: 21-11-2024

AI Rating: 4

Fabrinet's stock faced a challenging day in the market, reflecting a strong sell-off of 9% after B. Riley downgraded its rating from neutral to sell. This downgrade, alongside a reduced price target from $194 to $178, indicates potential downside, raising concerns about the company's near-term valuation.

Analysts at B. Riley foresee headwinds in Fabrinet's optics business due to a shift in strategy from major clients like Amazon. As Amazon looks to source components independently or through other partners, it signals a weakening dependency on Fabrinet's products. This change could adversely affect Fabrinet's revenue, especially tied to Nvidia's GPUs, which have been a significant part of its sales strategy due to high demand in the tech market.

Despite these adverse developments, Fabrinet provided a revenue guidance for the current quarter of $800 million to $820 million, projecting a year-over-year growth of approximately 14%. Additionally, the midpoint target for adjusted earnings per share suggests an annual growth of roughly 19%. This demonstrates that while immediate pressures are rising, Fabrinet continues to forecast strong growth, at least in the short term.

However, the anticipated shift away from bundled offerings could lead to a loss of market share and investor confidence, potentially eliciting lower valuations in the future. Such dynamics underscore the importance of closely monitoring ongoing developments around Nvidia as well as the company's ability to adapt to a changing supply chain landscape.

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