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Why Is Ciena (CIEN) Down 11.8% Since Last Earnings Report?

Zacks Equity Research
·4 mins read

A month has gone by since the last earnings report for Ciena (CIEN). Shares have lost about 11.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ciena due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ciena Beats Earnings & Revenue Estimates in Q3

Ciena reported decent third-quarter fiscal 2020 results (ended Aug 1, 2020), with the top and the bottom line beating the respective Zacks Consensus Estimate.

However, the networking systems and software company stated that orders slowdown due to the COVID-19 pandemic is likely to hurt revenues for a few quarters.

Net Income

On a GAAP basis, net income in the quarter was $142.3 million or 91 cents per share compared with $86.7 million or 55 cents per share in the year-ago quarter. The improvement resulted from higher operating income.

Adjusted net income came in at $166.4 million or $1.06 per share compared with $112.3 million or 71 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 23 cents.

Revenues

Quarterly total revenues inched up 1.7% year over year to $976.7 million, reflecting the impact of orders slowdown caused by the pandemic. Ciena had one 10%-plus customer in the quarter, which represented 12% of revenues. The top line surpassed the consensus estimate of $972 million.

Region-wise, revenues in the Americas were $713.3 million, up 8.7% year over year. Revenues in Europe, the Middle East and Africa were $162.5 million, down from $169.5 million in the year-ago quarter. Asia-Pacific revenues totaled $100.9 million, down 25.1% year over year.

Segment Results

Total revenues in the Networking Platforms increased 0.8% year over year to $802.3 million. Platform Software and Services revenues were $46.4 million compared with $37.3 million in the prior-year quarter. Blue Planet Automation Software and Services revenues increased from $10.5 million to $11.3 million. Total revenues in Global Services were $116.7 million, flat year over year.

Other Details

The adjusted gross margin was 48.2% compared with 44.7% in the year-ago quarter. Adjusted operating expenses were $251.2 million, down from $273.2 million. Operating income improved to $188 million from $125.3 million. Adjusted operating income increased to $219.3 million from $156 million. The adjusted operating margin came in at 22.4% compared with 16.2% in the prior-year quarter. Adjusted EBITDA was $241.1 million, up from $178 million in the year-ago quarter.

Cash Flow & Liquidity

In the first nine months of fiscal 2020, Ciena generated $306.4 million of net cash from operating activities compared with $173.1 million in the prior-year period. As of Aug 1, the company had $1,093.7 million in cash and equivalents with $677.9 million of net long-term debt.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -25.63% due to these changes.

VGM Scores

Currently, Ciena has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Ciena has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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