ZTE News Puts Oclaro, Inc. (OCLR) in the Spotlight

What:
Traders are watching Oclaro, Inc. (NASDAQ:OCLR) after news broke that ZTE Corporation has pleaded ‘guilty’ for violating sanctions against Iran. Specifically, the Justice Department reported that the company admitted culpability to ‘llegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statements’. In addition to its guilty plea, ZTE will pay a $287 million fine and forfeit $143.5 million more. The two fines bring the total amount ZTE has agreed to pay the U.S. government to around $892.4 million.

Why:

ZTE is a customer of Oclaro, Inc. (NASDAQ:OCLR), and ZTE’s overall financial health could affect Oclaro’s sales to a degree. Fortunately for Oclaro shareholders, the market expected the bad news already and already seems to have priced in the event.

What Next:

Given that ZTE is a major Chinese company, the conglomerate will be okay even with the fines, and it seems the market doesn’t think that the news will affect Oclaro much. For the most part, Oclaro isn’t as exposed to ZTE as other companies in the sector. Shares have soared in recent years due to fast growth, and Oclaro shares might continue to rise if the company’s earnings continue to blow away analyst estimates.

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What does Smart Money Sentiment Say?

Our data shows that hedge fund sentiment has been relatively stable, at least between the third and fourth quarters. Of the 742 elite funds we track, 40 funds owned $245.33 million of Oclaro, Inc. (NASDAQ:OCLR) and accounted for 16.60% of the float on December 31, versus 41 funds and $247.62 million respectively on September 30.

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