Telecommunications network specialist Ciena Corp. (CIEN) is scheduled to release its fiscal second quarter 2012 earnings results before the opening bell on May 31, 2012. In the run-up to the earnings release, we do not notice any revision in analyst estimates.
Prior-Quarter Recap
Ciena reported first quarter loss per share of 26 cents, worse than the Zacks Consensus Estimate of a loss of 17 cents. Revenue of $416.7 million for the quarter not only decreased on a year-over-year basis but also missed the Zacks Consensus Estimate of $421.0 million. The year-over-year decline was primarily attributed to a corresponding decrease in the product revenue, which more than offset the increase in service revenue.
For further details please read: Ciena Misses 1Q Estimates
Current Quarter Expectations
For the quarter, Ciena expects revenues in the range of $435.0 million to $460.0 million. Currently, the Zacks Consensus Estimate is pegged at $446.0 million.
Adjusted gross margin is projected to be in the low 40% range, consistent with the company’s near-term expectation. However, management expects adjusted operating expenses to be in the low $180 million range.
Estimate Revision Trend
In the last 30 days, out of the five analysts covering the stock, none of the analysts revised estimates. Therefore, estimated loss per share was pinned at 14 cents.
Analysts covering the stock opine that Ciena will be benefited by the new product cycles, and improvement in the carrier spending will positively impact the company in the second half of 2012. Moreover, the stock is down 17% in the last three months compared to a 3% decline in the S&P 500 index, which suggests that the company has somewhat priced in the weak macro-economic environment. Additionally, analysts expect near-term results to be positively impacted by carrier optical network upgrade cycle and steady deployment of fiber-based Ethernet technologies.
However, contrarian view such as weaker-than-expected international demands and margin pressures coupled with an unfavorable pricing scenario are the near-term headwinds for the company.
Conclusion
Ciena has posted average earnings surprise of a negative 1.21% in the trailing four quarters, implying that the company generally failed to surpass the Zacks Consensus Estimate over that period. However, we anticipate the company to recover on the back of favorable operational execution and the new product line up. Going forward, these factors would lead to a gradual improvement in results.
However, we cannot undermine the near-term headwinds in the form of delays in revenue recognition due to new project ramp ups, increased expenses, slowdown in carrier spending and intensifying competition from Cisco Systems Inc. (CSCO) and Alcatel-Lucent (ALU). All these factors compel us to have a Neutral recommendation on the stock in the long term. Currently we have a Zacks #3 Rank for Ciena, implying a ‘Hold’ rating in the short term.
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