Here's Why Investors Should Consider Buying Ciena (CIEN)
Ciena Corporation CIEN appears to be a promising stock to add to the portfolio in tackling the current macroeconomic and geopolitical uncertainties and benefit from its healthy fundamentals and growth prospects.
Let’s look at the factors that make the stock an attractive pick:
Attractive Pricing: Wall Street is facing extreme volatility due to macroeconomic factors such as rising inflation and interest rate hikes by the Federal Reserve, increased crude oil prices and lingering supply-chain woes.
The above-mentioned factors are taking a toll on major U.S. indices. In the past year, the S&P 500 has fell 17.3%.
The stock is down 31.7% from its 52-week high level of $74.98 on Jan 13, 2022, making it relatively affordable for investors.
Ciena Corporation Price
Ciena Corporation price | Ciena Corporation Quote
Solid Rank: CIEN currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Robust Estimates: The Zacks Consensus Estimate of 2023 and 2024 earnings is pegged at $2.62 and $3.70, which indicates a year-over-year increase of 37.9% and 41%, respectively.
Also, revenues for 2023 and 2024 are estimated to be $4.25 billion and $4.63 billion, indicating year-over-year growth of 17% and 8.8%, respectively.
Ciena reported fourth-quarter fiscal 2022 (ended Oct 29, 2022) results, with adjusted earnings of 61 cents per share, beating the Zacks Consensus Estimate of 8 cents.
Quarterly total revenues were down 6.8% year over year to $971 million owing to supply-chain disruptions. The top line surpassed the Zacks Consensus Estimate by 14%. However, Ciena stated that revenues are likely to start improving from fiscal 2023, owing to strong secular demand trends coupled with easing supply-chain issues.
CIEN has a four-quarter average earnings surprise of 162.4%.
Upbeat Guidance: For fiscal 2023, the company expects revenue growth of 16%-18%. Adjusted gross margin is estimated to be between 42% and 44%.
Adjusted operating expenses are estimated to be $325 million per quarter. The outlook is driven by a significant backlog and signs of supply-chain improvement.
Solid Business Model:
CIEN is a leading provider of optical networking equipment, software and services. The company’s coherent optics solutions continue to benefit from increased network traffic, demand for bandwidth and adoption of cloud architectures.
In the fiscal fourth quarter, the company achieved 200 Adaptive IP customers driven by strength in key areas like coherent routing, metro aggregation, PON and high-speed business services. Also, the company had 776 100G+ customers, including 17 and 15 new customer wins on WaveLogic Ai and WaveLogic 5 Extreme, respectively.
In December 2022, the company announced that its coherent optics solutions were leveraged by Uruguay-based telecommunications company ?? Dedicado. Dedicado will utilize Ciena’s 6500 Packet-Optical Platform powered by WL5e coherent optical technology to support the rising demand for network connectivity.
The company continues to grow its customer base through collaborations and acquisitions. In November 2022, the company announced an agreement to acquire California-based Tibit Communications. Also, the company announced that it had acquired Benu Networks.
The buyouts will increase the company's capacity to support clients' metro and edge strategies and cope with increased investments made by service providers to update and boost network connectivity.
The company also has a share repurchase program in place. Ciena repurchased $500 million worth of shares in fiscal 2022. The company plans to repurchase shares worth $250 million in fiscal 2023.
As of Oct 29, 2022, the company had 1.2 billion in cash and investments and $1,061.1 million of net long-term debt.
The company plans to deliver a three-year revenue CAGR of 10-12% throughout fiscal 2025, excluding the next year’s revenue growth of 16-18%.
Apart from its solid fundamentals, the company is prone to several risks. The company operates in a highly competitive and capital-intensive communications networking and equipment business. This is likely to negatively impact the company’s performance.
Also, the company relies upon third-party contract manufacturers with facilities in Canada, Mexico, Thailand and the United States to perform a substantial portion of its supply chain activities.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology space are Arista Networks ANET, Jabil JBL and Asure Software ASUR. Arista Networks and Jabil sport a Zacks Rank #1, whereas Asure Software carries a Zacks Rank #2.
The Zacks Consensus Estimate for Arista Networks 2022 earnings is pegged at $4.37 per share, up 0.5% in the past 60 days. The long-term earnings growth rate is anticipated to be 17.5%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 12.7%. Shares of ANET have declined 13.4% in the past year.
The Zacks Consensus Estimate for Jabil’s 2023 earnings is pegged at $8.31 per share, rising 1.6% in the past 60 days. The long-term earnings growth rate is anticipated to be 12%.
Jabil’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 8.8%. Shares of JBL have increased 2.7% in the past year.
The Zacks Consensus Estimate for Asure Software’s 2022 earnings is pegged at 7 cents per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 23%.
Asure Software’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 83.3%. Shares of ASUR have soared 37.5% in the past year.
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