Core Viewpoint - The article highlights Fabrinet as a promising growth stock, supported by its strong earnings growth, cash flow growth, and positive earnings estimate revisions, making it a suitable choice for growth investors [2][10]. Group 1: Earnings Growth - Fabrinet has a historical EPS growth rate of 25.6%, with projected EPS growth of 17.5% for the current year, surpassing the industry average of 15.9% [5][4]. Group 2: Cash Flow Growth - The year-over-year cash flow growth for Fabrinet is 14.4%, significantly higher than the industry average of -14% [6]. - The company's annualized cash flow growth rate over the past 3-5 years is 17.1%, compared to the industry average of 5.1% [7]. Group 3: Earnings Estimate Revisions - The current-year earnings estimates for Fabrinet have been revised upward, with the Zacks Consensus Estimate increasing by 3.6% over the past month [8]. - This positive trend in earnings estimate revisions contributes to Fabrinet's Zacks Rank of 2 (Buy) [10]. Group 4: Overall Positioning - Fabrinet's combination of a Growth Score of B and a Zacks Rank of 2 positions it well for potential outperformance in the market, making it an attractive option for growth investors [10].

Core Insights - Fabrinet will release its financial results for the fourth quarter and fiscal year 2025 on August 18, 2025, after market close [1] - A conference call and webcast will be held on the same day at 5:00 p.m. EDT to discuss the results [2] Company Overview - Fabrinet is a leading provider of advanced optical packaging and precision manufacturing services for original equipment manufacturers of complex products [3] - The company specializes in optical communication components, automotive components, medical devices, and industrial lasers and sensors [3] - Fabrinet operates engineering and manufacturing facilities in Thailand, the USA, China, and Israel [3]

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Core Viewpoint - Fabrinet (FN) is positioned to potentially continue its earnings-beat streak in the upcoming report, supported by its strong historical performance in earnings surprises [1]. Company Performance - Fabrinet has a track record of exceeding earnings estimates, particularly in the last two quarters, with an average surprise of 3.00% [2]. - In the last reported quarter, Fabrinet achieved earnings of $2.52 per share, surpassing the Zacks Consensus Estimate of $2.47 per share, resulting in a surprise of 2.02% [3]. - For the previous quarter, the company was expected to report earnings of $2.51 per share but delivered $2.61 per share, yielding a surprise of 3.98% [3]. Earnings Estimates and Predictions - Estimates for Fabrinet have been trending upward, aided by its history of earnings surprises [6]. - The stock currently has a positive Zacks Earnings ESP of +1.14%, indicating increased analyst optimism regarding its near-term earnings potential [9]. - The combination of a positive Earnings ESP and a Zacks Rank of 2 (Buy) suggests a strong likelihood of another earnings beat [9]. Statistical Insights - Research indicates that stocks with a positive Earnings ESP and a Zacks Rank of 3 (Hold) or better have a nearly 70% chance of producing a positive surprise [7]. - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate reflecting the latest analyst revisions [8].

Group 1 - Fabrinet (FN) is currently outperforming its peers in the Computer and Technology sector, with a year-to-date gain of approximately 30.4% compared to the sector's average return of 7% [4][5] - The Zacks Rank system, which emphasizes earnings estimates and revisions, has assigned Fabrinet a Zacks Rank of 2 (Buy), indicating a positive earnings outlook [3] - The consensus estimate for Fabrinet's full-year earnings has increased by 1.5% over the past quarter, reflecting improving analyst sentiment [3] Group 2 - Fabrinet belongs to the Electronics - Miscellaneous Components industry, which is ranked 72 in the Zacks Industry Rank, and has outperformed the average gain of 4.5% in this group [5] - Another stock in the Computer and Technology sector, CSG Systems (CSGS), has also shown strong performance with a year-to-date return of 28.4% and a Zacks Rank of 2 (Buy) [4][6] - The Computer - Services industry, to which CSG Systems belongs, is ranked 210 and has seen a gain of 5% this year, indicating a weaker performance compared to Fabrinet [6]

Financial Data and Key Metrics Changes - The company reported a compound annual growth rate (CAGR) of 16% in revenue and 21% in earnings over the past ten years, indicating strong growth compared to the contract manufacturing industry [9][105] - For fiscal year 2025, the company expects revenue to be up approximately 18% compared to fiscal year 2024 [9] Business Line Data and Key Metrics Changes - The optical communications segment accounts for over 70% of the company's business, with datacom and telecom roughly split [6] - The datacom business has been growing well, while the telecom business has recently shown strength [6] - The gross margin has been in the range of 12% to 13%, with operating margins around 10% to 11% [13][14] Market Data and Key Metrics Changes - The company has seen a significant increase in demand for 400 ZR products, which now represent about 10% of overall revenue [72] - The telecom revenue has rebounded to approximately $406 million, recovering from a previous low due to inventory digestion [70][71] Company Strategy and Development Direction - The company focuses on being a pure play contract manufacturer without its own products, which allows it to maintain strong relationships with customers [8][96] - The strategy includes expanding capabilities in optical subsystems and components while maintaining low costs and high margins [14][17] - The company is also exploring opportunities in co-packaged optics, which is expected to be additive to existing business [60] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the stability of the macro environment, noting that the products manufactured are primarily for infrastructure projects, which are less susceptible to consumer sentiment [24] - The company is closely monitoring tariff impacts but has not seen significant effects on operations [25] - Management believes that the telecom business will continue to grow, driven by system wins and the recovery of baseline business [80] Other Important Information - The company has a layered hedge structure for foreign exchange risks, primarily related to the Thai baht [101] - The tax rate is expected to remain stable, with no significant increases anticipated [82] Q&A Session Summary Question: What makes Fabrinet unique versus others? - The company emphasizes its specialization in a few key areas, maintaining a strong reputation and executing well for customers, which builds trust and leads to more business [94][96] Question: How do you expect your tax rate to change? - The company operates at a mid-single-digit tax rate and expects to maintain this due to ongoing tax benefits in Thailand [82] Question: Can you elaborate on the systems wins with Cisco, Sienna, and Amazon? - The company has secured significant wins with Cisco and Sienna, and is optimistic about the relationship with Amazon, which spans multiple revenue categories [84][48] Question: What is the current state of inventory levels across the industry? - Inventory levels are improving but have not returned to pre-COVID levels; the company is seeing a downward trend in customer inventory [88][87] Question: How does the company maintain its margin structure? - The company focuses on controlling costs and maintaining a stable margin structure despite short-term headwinds from product ramps [104]

Core Insights - Fabrinet, a leading provider of advanced optical packaging and precision manufacturing services, will present at the Rosenblatt Securities 5th Annual Technology Summit on June 10, 2025 [1][2]. Company Overview - Fabrinet specializes in manufacturing services for original equipment manufacturers of complex products, including optical communication components, automotive components, medical devices, and industrial lasers [3]. - The company offers a comprehensive range of capabilities throughout the manufacturing process, such as process design, supply chain management, advanced packaging, integration, and testing [3]. - Fabrinet operates engineering and manufacturing facilities in Thailand, the USA, China, and Israel, focusing on high complexity products in various volumes [3].

Summary of Fabrinet (FN) FY Conference Call - May 15, 2025 Company Overview - **Company**: Fabrinet (FN) - **Industry**: Optical manufacturing and contract manufacturing - **Key Management**: Seamus Grady (CEO), Shava Swerha (CFO) Key Insights and Arguments Customer Behavior and Macro Environment - No observed changes in customer ordering patterns or behaviors, indicating stability in demand despite macroeconomic concerns [3][4] - Majority of products are for infrastructure applications, which are less sensitive to consumer sentiment [4] Revenue Composition and Market Expansion - Approximately 75% of revenue is derived from optical manufacturing, with significant contributions from telecom and datacom sectors [6] - Engagement with AWS and other customers is prompting Fabrinet to expand its capabilities beyond just optical manufacturing [5][6] Contract Manufacturing Strategy - Fabrinet remains focused on contract manufacturing and is not entering the product business, ensuring no competition with existing customers [8][24] - The company is expanding into advanced packaging and system assembly to enhance service offerings [9][10] Datacom Business and Customer Relationships - NVIDIA is the largest customer, with a long-standing relationship that began with Mellanox; significant volumes of transceivers are produced for NVIDIA's products [14][15] - Anticipation of ramping up production for the 1.6T transceivers, with readiness to support new product launches [19][20] Competitive Landscape - The market is growing rapidly, and while competition is increasing, Fabrinet believes there is enough business for all players [30][31] - The company emphasizes its specialized capabilities and low-cost structure as competitive advantages [32] Technology Transitions - Transitioning from 800G to 1.6T is expected to be less impactful on pricing than historically, due to cost-saving measures and increased in-house production [39][41] - Concerns about losing market share in 800G are addressed by the introduction of new versions that will coexist with existing products [46] CPO and Future Technologies - Fabrinet is involved in multiple co-packaged optics (CPO) projects, indicating a strategic position in the evolving optical communication landscape [49][50] - The company sees CPO as a long-term opportunity but acknowledges that it is still in early development stages [50] Financial Outlook and Growth Drivers - Anticipated modest headwinds in Q4 due to simultaneous new product ramps, but expected to resolve quickly as these products gain traction [55][56] - Significant revenue potential from the new Amazon business, with the possibility of it becoming a major customer [65][72] Telecom Market Dynamics - The telecom business is segmented into baseline growth, 400ZR products, and new system wins, all of which are currently experiencing growth [74][78] - The company plans to disclose DCI as a separate category in future reports to provide clearer insights into revenue streams [77] Additional Important Points - The decision to issue warrants to Amazon aligns interests and provides revenue visibility, indicating a strong partnership [65][66] - Fabrinet's manufacturing capabilities are complex and not easily replicable, providing a competitive edge in the face of global tariff concerns [35][36] This summary encapsulates the key points discussed during the conference call, highlighting Fabrinet's strategic positioning, market dynamics, and future growth opportunities.

Investment Rating - The report maintains an "Outperform" rating for the communication industry, indicating expected growth exceeding the benchmark index by over 10% [1]. Core Insights - The North American optical communication companies such as Coherent, Lumentum, AAOI, Fabrinet, and Macom have shown significant revenue growth, particularly in optical modules and related products, suggesting a strong rebound in the second quarter [2][3][4][5][6][7]. - The demand for optical communication is driven by the growth of AI data centers and telecommunications, with companies like Coherent and Lumentum reporting substantial increases in revenue due to these sectors [3][4][5][6]. - The ongoing geopolitical tensions, such as the India-Pakistan conflict, have heightened confidence in defense equipment and military communication capabilities, which are expected to see increased demand [8]. Summary by Sections Industry Dynamics - Coherent reported Q3 2025 revenue of $1.5 billion, a 24% year-on-year increase, with 60% of this from the communication market, which grew by 46% [3][16]. - Lumentum's Q3 2025 revenue reached $425.2 million, up 16% year-on-year, driven by hyperscale cloud growth [4][17]. - Fabrinet's Q3 2025 revenue was $872 million, a 19.2% increase, with optical communication revenue at $657 million, up 11.1% [5][18]. - AAOI's Q1 2025 revenue surged to $99.9 million, a 145% increase, largely due to strong CATV market demand [6][19]. - Macom's Q2 2025 revenue was $236 million, a 30% increase, with data center market revenue up 67.3% [7][20]. Investment Recommendations - The report suggests focusing on companies in the optical communication sector, including Zhongji Xuchuang, Xinyi Technology, and Shijia Photon [9][22]. - It also highlights companies in copper connections and military communication sectors as potential investment opportunities [22]. Market Overview - The overall market performance from May 6 to May 9, 2025, showed mixed results, with the Shenwan Communication Index up by 4.96% [22]. - The optical module sector led the gains with a 15.3% increase, followed by controllers and liquid cooling technologies [22][23]. Notable Trends - The report emphasizes the resilience of the optical communication market, driven by the increasing demand for AI-related applications and private cloud deployments [20][21]. - The military communication sector is expected to benefit from advancements in technology and increased defense spending, particularly in the context of recent military conflicts [8][21].