Fabrinet (FN, Financial) shares experienced a notable decline, dropping 9.02% today. This movement was primarily triggered by a downgrade from B. Riley, which shifted its rating from neutral to sell, subsequently lowering the one-year price target from $194 to $178. This adjustment points to a potential downside of approximately 21% from the stock's current price.
B. Riley's analysts have highlighted potential challenges for Fabrinet due to a decrease in demand for its product bundles with Nvidia's GPUs. Although Nvidia's GPUs continue to be in high demand, Fabrinet has previously benefited from integrating its technology components with these products. However, with Amazon's plan to source only Nvidia's GPUs and procure other components from different suppliers, similar strategies are expected to be adopted by other cloud service providers like Microsoft and Meta Platforms.
Despite these anticipated challenges, Fabrinet reported strong financial performance, powered by increasing demand for AI applications. The company forecasted Q2 revenue to be between $800 million and $820 million, suggesting a growth of approximately 14% year-over-year. Furthermore, Fabrinet expects around a 19% rise in adjusted earnings per share for the same period. Nevertheless, shifts in Nvidia-related demand could potentially influence Fabrinet's valuation.
Analyzing Fabrinet's current valuation metrics, the stock is trading at a price of $226.3 with a price-to-earnings (PE) ratio of 26.78. According to the GF Value estimation, the stock is considered "Modestly Overvalued" with a GF Value of $174.46, implying that the stock might be trading above its intrinsic value. For more details on the GF Value, please visit the GF Value page.
Fabrinet's financial strength is supported by a strong Altman Z-Score of 12.31, indicating a low risk of financial distress. The company also holds a high Piotroski F-Score of 7, which suggests a very healthy financial situation. Furthermore, its operating margin is expanding, which is generally a positive indicator for investors.
Despite the recent insider selling activities, with 44,728 shares sold in the last three months, Fabrinet maintains strong institutional ownership at 99.35%. The stock's future performance is expected to heavily rely on the evolving demand dynamics in the AI sector and strategies adopted by its major partners.
