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Why Ciena (CIEN) Might be Well Poised for a Surge

Zacks Equity Research
·2 mins read

Ciena (CIEN) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this developer of high-speed networking technology, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Ciena, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.82 per share, which is a change of +15.49% from the year-ago reported number.

Over the last 30 days, eight estimates have moved higher for Ciena compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 19.72%.

Current-Year Estimate Revisions

The company is expected to earn $2.92 per share for the full year, which represents a change of +38.39% from the prior-year number.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, 11 estimates have moved up for Ciena versus no negative revisions. This has pushed the consensus estimate 11.35% higher.

Favorable Zacks Rank

Thanks to promising estimate revisions, Ciena currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

While strong estimate revisions for Ciena have attracted decent investments and pushed the stock 14.6% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.

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Zacks Investment Research