Acacia’s 4Q EPS Outlook Beats Estimates; Files Counterclaim Against Cisco

Acacia Communications provided a better-than-expected preliminary profit outlook for the fourth quarter and full-year 2020. Acacia is scheduled to report its 4Q results in February. The stock increased 1.6% in Monday’s extended trading session.

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Acacia (ACIA) projects 4Q adjusted earnings to be in the range of $0.88-$0.97 per share, beating the Street’s estimates of $0.76 per share. The company expects to generate 4Q revenue of between $160 million-$164 million, compared to analysts’ expectations of $162.2 million.

As for 2020, Acacia forecasted earnings in the range of $2.86-$2.95 per share, above the consensus estimates of $2.73 per share. Revenue is estimated to generate $579.3 million-$583.3 million in 2020, compared to analysts’ expectations of $581.5 million. (See ACIA stock analysis on TipRanks).

In a separate development, Acacia’s merger deal with Cisco Systems (CSCO) is turning bitter. Acacia announced that it has filed a counterclaim in response to Cisco’s complaint.

According to Cisco, Acacia is trying pull out of the deal even after meeting all regulatory conditions for closing the transaction. Meanwhile, Acacia is claiming that it had “validly terminated” the Cisco deal on Jan. 8 as the transaction hadn’t been approved by Chinese regulators before the agreed-upon termination date.

Following the termination of the deal, Needham analyst Alex Henderson said, “From our perspective, Cisco is saying we want more time and is willing to waive the Chinese approval. To us, it looks like Cisco is asking for another period when the clock runs down on the fourth quarter, and that’s simply not how it works.”

Henderson added, “We think Acacia has the right to break the deal, but will not be paid a break-up fee.” The analyst believes that “if the deal break is confirmed, as a stand-alone company, Acacia is worth $95-$110 per share.” The analyst maintained a Hold rating on the stock.

Overall, consensus among analysts is a Moderate Buy with 2 analysts recommending a Buy and 1 suggesting a Hold. The average price target of $110 implies upside potential of 34% to current levels. Shares have gained 19.8% over the past year.