It has been about a month since the last earnings report for Fabrinet (FN). Shares have added about 6.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fabrinet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FN Q3 Earnings Beat Estimates, Revenues Up on Strong Telecom & HPC
Fabrinet delivered strong third-quarter fiscal 2026 results, supported by broad-based program momentum. Non-GAAP earnings were $3.72 per share, up 47.6% year over year and beat the Zacks Consensus Estimate by 3.91%. Quarterly revenues rose 39.3% year over year to $1.214 billion, topping the consensus mark by 1.56%.
Strength in Optical Communications remained the key engine, with data center interconnect (DCI) revenues reaching $196.9 million in the reported quarter, reflecting 90.4% year-over-year growth.
FN Posts Record Revenue With Optical Still Dominant
Optical Communications remained the company’s largest business (73.2% of revenues), generating $888.7 million of revenues in the quarter, which was up 35.3% year over year.
Within Optical Communications, the mix tilted further toward Telecom. Management attributed the quarter’s strong optical performance to robust demand across a wide range of telecom products, even as certain datacom shipments were constrained by component availability.
Fabrinet Sees Telecom Momentum Outweigh Datacom Constraints
Telecom revenues climbed to a record $628.3 million in the reported quarter (up 54.7% year over year), extending the company’s recent momentum in the category. DCI was a notable contributor, with management highlighting strong longer-term DCI trends and continued program activity with major industry participants.
Datacom revenues were $260.4 million (up 3.7% year over year) and were pressured by broader component and material supply constraints. On the earnings call, Fabrinet noted that demand exceeded what it was able to ship, citing bottlenecks across multiple inputs, including lasers, memory and certain ASICs. The company emphasized that the issue was supply-driven rather than demand-driven and expects volatility to persist in the near term.
FN Highlights New Datacom Programs and CPO Progress
While Datacom shipments were constrained in the quarter, management pointed to tangible progress on customer diversification. Fabrinet said it has completed qualification and begun shipping two datacom transceiver programs directly to a hyperscale customer, with an initial ramp expected to start in the fourth quarter and build through fiscal 2027.
The company also discussed co-packaged optics (CPO) as a strategic focus area. Management said it is working on multiple CPO programs with three customers and is already shipping in small volumes, with most of the revenue opportunity still ahead. Fabrinet also disclosed a minority investment in Raytek Semiconductor to deepen capabilities in advanced wafer-level packaging technologies that support CPO manufacturing solutions.
Fabrinet’s Non-Optical Segment Expands on HPC Ramps
Non-Optical Communications (26.8% of revenues) contributed $325.6 million, reflecting continued expansion beyond the optical franchise. The figure jumped 51.6% year over year. High-Performance Computing (HPC) was a key driver, producing $106.7 million of revenues as Fabrinet supported customers transitioning to newer product generations.
On the call, management indicated the current HPC ramp is tracking to customer expectations, though the timing to reach a $150 million quarterly milestone has shifted by roughly a quarter due to the nature of the technology transition. Fabrinet also noted follow-on program awards with the same customer, suggesting a broader scope over time as it adds capacity aligned with customer growth plans.
FN Maintains Profitability and Invests for Growth
Non-GAAP gross margin was 12.1% in the reported quarter, while non-GAAP operating margin was 10.7%, reflecting operating leverage. Gross margin expanded 10 basis points (bps) year over year, while operating margin grew 50 bps.
Selling, general & administrative expenses as a percentage of revenues declined 50 bps year over year to 2% in the reported quarter.
Management cited foreign exchange dynamics as a key margin headwind and noted that new program ramps can create short-term inefficiencies, which it expects to improve as programs mature.
FN Balance Sheet Supports Ongoing Capacity Expansion
Fabrinet ended the reported quarter with $945.9 million in cash and cash equivalents and zero total debt, supporting ongoing capacity expansion.
Capital spending remained elevated as the company advanced construction on Building 10 and expanded capacity for growth programs.
FN Offers Positive Q4 Fiscal 2026 Guidance
For the fourth quarter of fiscal 2026, Fabrinet guided revenues of $1.25-$1.29 billion and non-GAAP earnings of $3.72-$3.87 per share, while acknowledging the near-term supply-constrained environment in parts of Datacom.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
Currently, Fabrinet has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a score of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Fabrinet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Fabrinet belongs to the Zacks Electronics - Miscellaneous Components industry. Another stock from the same industry, TTM Technologies (TTMI), has gained 12.6% over the past month. More than a month has passed since the company reported results for the quarter ended March 2026.
TTM reported revenues of $845.98 million in the last reported quarter, representing a year-over-year change of +30.4%. EPS of $0.75 for the same period compares with $0.50 a year ago.
TTM is expected to post earnings of $0.97 per share for the current quarter, representing a year-over-year change of +67.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +14.8%.
TTM has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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This article originally published on Zacks Investment Research (zacks.com).