Fabrinet (FN) Stock Forecast & Price Target

Fabrinet's stock outlook appears positive due to substantial growth in its Telecom sales, which increased 59% year-over-year and 15% quarter-over-quarter, reaching $505 million, driven primarily by a strong ramp in 400G/800G ZR shipments and contributions from Ciena's new WaveLogic program. Additionally, the company reported a 22% year-over-year and 8% quarter-over-quarter increase in total revenues for 1Q26, totaling $978 million, which surpassed estimates by approximately $50 million, indicating robust demand and successful market positioning. The anticipated ramp-up of over $2 billion in new production capacity by the end of C26, along with expanding customer relationships and the integration of optic and systems production, further enhances the financial outlook for Fabrinet.

Fabrinet's financial performance shows troubling trends, with Datacom revenues declining by 1% quarter-over-quarter and 17% year-over-year, totaling $273 million, primarily due to laser supply challenges. The company's gross margins decreased to 12.3%, falling 30 basis points quarter-over-quarter and 40 basis points year-over-year, which was below previous estimates, affected by foreign exchange headwinds and merit increases despite some support from operating leverage. A key risk identified for Fabrinet is its ability to absorb pricing pressures while facing productivity challenges, and continued adverse market conditions could significantly undermine profitability and result in lost revenues and market share.