A month has gone by since the last earnings report for Fabrinet (FN). Shares have added about 23.3% 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? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent drivers for Fabrinet before we dive into how investors and analysts have reacted as of late.
Key Highlights
• Revenue: $1.13 billion, up 36% year over year and 16% sequentially
• EPS: Non-GAAP earnings of $3.36 per share, up 29% year over year
• Cash and short-term investments $961.5 million at Q2-end.
• $169 million share repurchase authorization remaining.
Fabrinet delivered strong second-quarter fiscal 2026 non-GAAP earnings of $3.36 per share that beat the Zacks Consensus Estimate by 3.07%. Revenues of $1.13 billion surpassed the consensus mark by 5.03%. The figure jumped 36% year over year and 16% sequentially.
Segment Performance
Optical communications revenues reached $832.6 million, up 29% year over year, driven by Telecom at $412.2 million, up 66.2% year over year and DCI modules of $142.2 million, up 42.1% year over year, reflecting durable demand across market-leading customers. Datacom revenues of $278.1 million dropped 7% year over year but improved 2% sequentially as supply constraints began easing following second-source EML laser approval.
Non-optical revenues surged 61% year over year to $300.3 million, underpinned by HPC revenues of $85.6 million and steady growth in Automotive (up more than 12.2% year over year) and Industrial Lasers (up more than 10.4% year over year). Fabrinet’s management expects the current HPC program to exceed $150 million per quarter when fully ramped over the next couple of quarters.
Operating Details
GAAP gross margin expanded 10 basis points (bps) to 12.2% in the reported quarter. Non-GAAP gross margin of 12.4% was unchanged on a year-over-year basis.
Non-GAAP operating margin expanded 30 bps on a year-over-year basis to 10.9%. Fiscal second quarter results included roughly $3 million (nearly 9 cents per share) below-the-line forex-related revaluation loss.
Balance Sheet and Capital Allocation
As of Dec. 26, 2025, cash, cash equivalents, and short-term investments (including restricted cash) were $961.5 million. Fabrinet had no debt in its balance sheet.
The company generated $46.3 million in cash flow from operating activities in the reported quarter compared with $102.6 million in the previous quarter.
Cash flow from operating activities in the first half of fiscal 2026 totaled $148.8 million. Capital expenditures reached $52 million in the second quarter of fiscal 2026 (first half spending was $96.9 million), reflecting accelerated capacity expansion. Building 10 (2.0 million sq. ft.) remains on track with ~250,000 sq. ft. ready by end-June 2026 and full completion through calendar year 2026.
Pinehurst campus conversion (~120,000 sq. ft.) is underway and expected to support over $150 million of annual revenue capacity. Fabrinet cited ~40% ROIC on growth investments and confidence in filling new capacity.
Share repurchases totaled roughly $5 million in the reported quarter, with $169 million authorization remaining.
Guidance
For the third quarter of fiscal 2026, Fabrinet guided revenue of $1.15-$1.20 billion (midpoint ~35% year-over-year growth) and non-GAAP earnings of $3.45-$3.60 per share.
Sequential growth is expected in Telecom, Datacom and HPC, with automotive modestly lower. Management anticipates the forex headwind to be substantially offset through operating leverage and tight operating expense control in the current quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.17% due to these changes.
VGM Scores
At this time, Fabrinet has a average Growth Score of C, a score with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been 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.
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Fabrinet (FN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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