2 Downgraded Tech Stocks to Avoid in Q4

2 Downgraded Tech Stocks to Avoid in Q4

Posted On October 27, 2021 1:57 pm

The COVID-19-pandemic-fueled tech boom seems to be cooling down due to supply chain disruptions. According to FactSet, S&P 500 information technology companies are expected to report 29% and 19% respective year-over-year earnings and revenue growth for the third quarter, compared to the second quarter’s 48% and 22%. Analysts expect the industry giants to experience shortfalls because of global supply chain disruptions.

Furthermore, the tech industry has become highly overcrowded, with many new companies venturing into the space to take advantage of its long-term growth prospects. With established companies dominating the industry, relatively smaller and fundamentally weak tech companies face cut-throat competition.

Given this backdrop, Infinera Corporation (INFN – Get Rating) and Latch, Inc. (LTCH – Get Rating) were recently downgraded by analysts. INFN was downgraded by JPMorgan Chase & Co. (JPM) from ‘neutral’ to ‘underweight,’ and LTCH was downgraded by Goldman Sachs Group Inc. (GS) from ‘Buy’ to ‘Neutral.’ Therefore, we think these two stocks are best avoided now.

Infinera Corporation (INFN – Get Rating)

INFN in Sunnyvale, Calif., is a global provider of optical transport networking equipment, software, and services. The company serves internet content providers (ICPs), communication service providers, wholesale carriers, institutions, large enterprises, and government entities.

On October 13, INFN and telecom and technology company Telstra Corporation Limited (TLSYY) announced INFN’s 800G solutions deployment across TLSYY’s international network. Although the deployment should afford the company the ability to provide accelerated service, it might take some time for it to gain substantially from this venture.

For its second fiscal quarter, ended June 26, INFN’s non-GAAP revenue increased 2% year-over-year to $339.21 million. However, its non-GAAP operating expenses rose 5.9% from the same period last year to $125.22 million. Its non-GAAP net income and non-GAAP net income per share stood at a negative $6 million and $0.03, respectively.

Even though the $383.58 million consensus revenue estimate for the current quarter (ending December 2021) indicates a rise of 8.2% year-over-year, the $0.04 consensus EPS estimate for the current quarter reflects a 69.2% decline from the prior-year quarter.

The stock has declined 30.9% in price year-to-date and 23.2% over the past six months to close yesterday’s trading session at $7.24.

INFN’s POWR Ratings reflect this bleak outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. The stock has a Sentiment and Quality grade of D. In the 55-stock Technology – Communication/Networking industry, INFN is ranked #45.

Click here to see the additional POWR Ratings for INFN (Growth, Value, Momentum, and Stability).

Latch, Inc. (LTCH – Get Rating)

New York City-based LTCH is a worldwide enterprise technology company. It provides LatchOS for commercial Office products, a commercial solution that extends services such as smart access, delivery management, and personalization solutions.

The company went public in a reverse merger with TS Innovation Acquisitions Corp. LTCH received approximately $453 million  in cash proceeds, including $190 million from a previously announced…


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