Ciena Gets Buy Rating Affirmation After Alliance Gets A Buyer
Competing in the shadow of Cisco Systems ( CSCO ) can be a tough place for Ciena ( CIEN ), the specialty fiber optics developer for telecom and cable service providers: Perform inadequately and you’re dust. Perform well and get picked off. In fact, perform so-so and get picked off, like Alliance Fiber Optic Products ( AFOP ) getting bought out by Corning ( GLW ) in a $305 million deal disclosed Thursday. “Ciena is quick to recognize its financial performance has fallen short of investor hopes, and its own,” said Nomura analyst Jeffrey Kvaal in a research note Friday, after spending time with Ciena Chief Technology Officer Steve Alexander and investor relations executive Gregg Lampf. Ciena is “taking steps to improve financial performance,” Kvaal said. “Ciena has suffered from high investor expectations ( Verizon ( VZ ) metro timing), macro factors (foreign exchange, mergers), and its own execution. To address these issues, Ciena has cleaned up its execution, widened the guidance range and added conservatism to its European guidance. “We would have preferred the guidance conservatism to apply more broadly. We believe many investors will only consider the stock following several quarters of outperformance, despite Ciena’s steady annual progress.” With such ambivalence, Kvaal reaffirmed Nomura’s buy rating and 24 price target on Ciena stock, which was up 2.5%, above 18, in afternoon trading in the stock market today . That’s still 32% below a nearly 16-month high of 26.50 touched last July. Shares fell below their 50-day moving average this week. Alliance Fiber Optic stock was up 19% Friday afternoon, at a six-month high near 18.50. That’s the price Corning agreed to pay for Alliance, an agreement disclosed after Thursday’s market close. Corning was down a fraction Friday afternoon, near 20.50, near a nine-month high at 21.07 reached March 30. Shares of networking king Cisco were up a fraction, near 28. Alliance and Corning both earn middling 63 IBD Composite Ratings, while Ciena has an 81 CR. Composite Ratings rank companies by major metrics such as sales and earnings growth over the past 12 months. “Beneath the headlines,” Nomura’s Kvaal said, Ciena offers “a solid growth story with rising margins.” Kvaal notes that Ciena works in the crosstown and long-haul markets beyond 50 miles, not inside the data center or campus markets. “It thus does not see the intra-data-center strength the component vendors are seeing and is not affected by Microsoft ’s ( MFST ) Colorz launch (announced in March). ” For Ciena’s fiscal Q1, ended Jan. 31, the company earned 18 cents per share minus items, up 50% from the year-earlier quarter, beating analysts’ 14-cent estimate. Revenue rose 8% to $573 million but missed analysts’ $576 million expectation. For Q2, analysts polled by Thomson Reuters expect EPS ex items to fall 23% to 27 cents, on revenue up 1.5% to $631 million.