Bear of the Day: Ciena (CIEN)
Ciena (CIEN) is a Zacks Rank #5 (Strong Sell) that leading provider of optical networking equipment, software, and services.
After trading sideways the first half of the year, the stock fell out of bed after its Q2 earnings report. Since then, the stock has struggled to go anywhere, hovering around the $40 level.
Investors will likely get a move over the next week as the company looks to report earnings on 8/31. Interested parties might want to take caution ahead of the report as estimates have been headed lower over the last few months.
About the Company
Ciena is headquartered in Hanover, Maryland.The company was founded in 1992 and employs about 8,000.
The company classifies its reporting segments into — Networking Platforms (80.8% of total revenues in second-quarter fiscal 2023); Platform Software and Services (6.1%); Blue Planet Automation Software and Services (1.8%); and Global Services (11.3%).
CIEN is valued at $6 billion and has a Forward PE of 16. The stock holds Zacks Style Scores of “B” in Growth and Momentum, but “F” in Value. The stock pays no dividend.
Q2 Earnings
In early June, Ciena reported a 23% EPS beat and saw a slight beat on revenues. EBITDA was up 39.7% y/y and management commented that the supply chain has improved.
However, the company cut it FY23 revenue to +18-22% y/y v the +20-22% prior. They additionally cut Q3 revenue to $1.00-1.08B v the $1.11B expected.
The guide lower disappointed investors as valuation comes into question. The stock fell about 14% from the prior session and analysts cut estimates across the board.
Estimates
When looking at the last 90 days, the trend lower in earnings estimates shows why the stock is struggling.
For the current quarter, analysts have dropped their numbers from $0.72 to $0.53, or 26%.
For the next quarter, analysts lowered estimates from $0.85 to $0.66, or 22%.
Longer term, numbers are falling as well. Next year’s estimates have gone from $3.61 to $3.20 or 11%.
A lot of analysts maintained their Buy rating for the stock, but lowered price targets. UBS went from $54 to $48, while JPMorgan went from $65 to $50.
Technical Take
When you zoom out, the chart does not look good. The $40 level has been was where the stock resided before the COVID crash. While it did spike to $78 in 2021, there has been no appreciation since early 2020.
When you zoom in and look at the moving averages, we see a 200-day MA way up at $46.50. The 50-day, which is at $42, has been strong resistance since the last earnings report.
The October lows are $38.33 and if earnings disappoint again, investors will be risking a sharp move below that area.
In Summary
Ciena is bleeding lower ahead of the earnings report next week. With another disappointing quarter possible, investors should take caution. If the $38 level were to break, we might see further pressure on the name as big money gives up.
For those interested in the sector, a better option might be Applied Optoelectronics (AAOI). The stock is a Zacks Rank #2 (Buy) that has rallied significantly since May.
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