JDS Uniphase (JDSU): Pullback?

Recent momo darling JDS Uniphase (NASDAQ:JDSU) may see a bit of a pullback today.

Here’s why:

– Bernstein is out downgrading the name to a Market Perform from Outperform saying they believe that at least two assumptions are necessary to justify JDSU’s stock – currently up 93% YTD – at the current valuation:

1. robust margins in the optical business persist long-term; and
2. new business segments propel growth.

In the first section, which forms the crux of their new Market-Perform thesis, they review the margin history of the Optical Communications industry and examine how quickly advantages are competed away, using ROADM WSS components (22.9% of JDSU 1H CY2010 Optical Communications revenue) as an example. In the second section, they do a deep dive into the fiber laser growth opportunity for JDSU. Despite long-term upside in fiber lasers, the firm does not think that the opportunity is sufficiently near-term to justify current valuation. While Bernstein expects Optical Communications and the new fiber laser initiative to be highlights of JDSU’s analyst day on February 17, they do not expect incremental news that sustains the stock’s momentum.

(its’s a 27 pg. note)

– Little known Evercore Partners is downgrading JDSU to Equal Weight from Overwright. They think that After a 95% upswing YTD, risk-reward is now balanced.

– Credit Suisse is out with a somewhat muted piece on JDSY saying the name currently trades at just over 25x their CY12 EPS estimate of $1.12. Even with significant upside potential to their estimates, the stock appears rich. Firm notes they wait for a pullback (likely not until after the analyst day) to consider a more constructive stance.

Maintains Neutral and $22 tgt.

Notablecalls: It looks somewhat toppish if you look at the chart. Doesn’t it?

I think the market may be in for a pullback and JDSU is my poison of choice for playing it. Just a situation call.

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