While Ciena didn't do itself any favors or instill the Street's confidence by issuing lower-than-expected guidance, I wouldn't get carried away here. Given that this company provides broadband, data networking and optical equipment services to Verizon
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While some questioned whether Ciena, competing with bigger rivals like Cisco
More impressive was that Ciena's recent performances occurred amid rumblings about would "needing" Ciena as much following Verizon's deal with Vodafone
The better-than-expected performance was helped by tremendous growth in areas like Converged Packet Optical and Software and Services (up 60% and 20%, respectively). Ciena's top-line and order growth continue to exceed management's own estimates. Why, then, is the Street overreacting to nothing more than cautious guidance?
Ciena's perceived lack of margin leverage is something that I talked about following the company's September quarter. I'm not going to pretend that Ciena's margins, which was lower again this quarter, has been exceptional. But companies don't often boast 25% revenue growth on the backing of many large deals without making some concessions.
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Essentially, some margin weakness could have easily been predicted ahead of Ciena's report. Yet, as the Street is known to do, this brand of logic seems to have been conveniently forgotten. Now don't misinterpret this as my suggesting that investors should jump into this stock and pretend that there are no risks. But I've seen no meaningful signs of anything that is close to being a fundamental deficit.
Company's growth and profits remains strongly predicated on carrier spending; that is some cause for anxiety. But in some respects, that's also the case for Cisco, Alcatel-Lucent
As with several of its rivals, Ciena is far from flawless. But with revenue growth having reaccelerated in each of the company's segments, I don't believe there is a better telecom operator out there that combines the growth and profit capabilities that Ciena brings. With shares trading at around $23 per share, I continue to project fair market value to reach $30 per share by the second half of 2014.
At the time of publication, the author was long AAPL.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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