Why Analysts Are Getting More Bullish on Ciena

Ciena Corp. (NYSE: CIEN) reported second-quarter fiscal 2016 results before markets opened Thursday. The company won out on this earnings report, and as a result analysts poured into the stock.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying about Ciena after the fact.

The network equipment maker reported adjusted diluted earnings per share (EPS) of $0.34 and $640.7 million in revenues. In the same period a year ago, the company reported EPS of $0.35 on revenue of $621.6 million. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.27 and $630.74 million in revenue.

For the fiscal third quarter ending in April, Ciena is forecasting revenues in a range of $655 million to $685 million and adjusted gross margin in the mid-40% range. Adjusted gross margin in the second quarter totaled 45.1%.

Ciena also is forecasting adjusted operating expenses at approximately $225 million, compared with a second quarter total of $254.9 million.

Consensus estimates for the third quarter call for EPS of $0.37 on revenues of $664.33 million.

U.S. sales comprised 57.3% of total sales and one customer, AT&T Inc. (NYSE: T), accounted for 18% of total revenue. In the first quarter, AT&T accounted for 22% of Ciena’s revenues.

The earnings and revenue beats pushed the shares higher on Thursday and Friday, but the bar had been set pretty low, and Ciena’s outlook was more or less in line with current expectations.

Merrill Lynch reiterated a Buy rating with a $23 price objective. The firm further detailed in its report:

Our $23 PO is based on roughly 14.3x our FY17E EPS, a slight premium to comparable companies. We believe this premium is warranted as Ciena is a market leader and should continue to benefit from the 100G upgrade cycle. … The Verizon metro build-out remains on schedule and orders outpaced revenue growth in 2Q, giving management increased confidence into 2H.

Upside risks to our price objective are: faster-than-expected transition to Ciena’s next generation technologies, faster-than-expected share gains and better-than-expected margin appreciation.

Downside risks to our price objective are: weakness in carrier spending on optical infrastructure, lower-than-expected traction with new and 100G products, and more muted gross and operating margin expansion than currently embedded into our and consensus views.

A few other analysts weighed in on the stock following the report:

  • B. Riley has a Buy rating and raised its price target to $26.50 from $25.75.
  • BMO has an Outperform rating and raised its price target to $25.
  • Citigroup has a Neutral rating and raised its price target to $21 from $18.
  • Cowen has an Outperform rating and raised its price target from $32 to $33.
  • Deutsche Bank has a Hold rating but raised its price target to $17 from $15.
  • Jefferies has a Buy rating and raised its price target to $25 from $23.

Shares of Ciena were up nearly 5% at $21.03 on Friday’s close, with a consensus analyst price target of $23.69 and a 52-week trading range of $15.62 to $26.50.