Raymond James upgraded Avanex (AVNX
) to strong buy from market perform, explaining that the company continues making progress on its transition to an outsourced contract manufacturing model.
Analyst Todd Koffman says this should significantly reduce the company's excess manufacturing overhead and provide it with continued product margin expansion. Koffman notes that during the December quarter, the company encountered operating difficulties associated with the transition that severely crimped revenue. Now, with many issues cleared up, he thinks the stage is set for the recapture of lost revenue, while the company simultaneously benefits from better overhead cost efficiencies. Koffman set a $3.50 stock price target.