MKM Partners’s Michael Genovese this afternoon initiated coverage of fiber optic component vendor Finisar (FNSR) and competitor JDS Uniphase (JDSU) with Buy ratings, writing that both should benefit as a “nearly year-long inventory correction” in the industry draws to a close.

Writes Genovese, “better end market demand, easing sequential ASP declines, balanced inventories and share gains” should help Finisar bounce back from declines in its revenue growth in every quarter since October of 2010. Gross margin should also expand next fiscal year, ending in April of 2013.

Genovese has a $24 price target on shares of Finisar.

Likewise, JDS, on which Genovese places an $18 price target, gets 30% of its sales from service providers, and half its revenue from components that go into communications equipment, and so it has suffered from “extraordinarily weak” telecom capital expenditures from Q3 of last year through the current quarter.

That should become easier starting next quarter, with perhaps mid-teens capital spending growth among carriers, quarter over quarter, in Q2.

Revenue for JDS, he notes, was down 13% in the December quarter, but “book-to-bill was above 1.0 in all three business segments, and orders were the highest in a year.”

He adds, “We expect that the strong order book and slope of the capex recovery should drive JDSU back to low- double-digit y/y sales growth in 2H12 and CY13.”

JDS shares today are down 25 cents, or 1.7%, at $14.54. Finisar shares are down 33 cents, or 1.7%, at $19.80.

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