BofA Securities revised its stance on CIENA Company (NYSE:CIEN) on Thursday, downgrading the inventory to Impartial from Purchase whereas holding its worth goal regular at $59.00.
The choice got here after making an allowance for the corporate’s third-quarter income, which, whereas beating Wall Avenue expectations, was down 12% from the identical interval final yr. As well as, CIENA’s fourth-quarter income development steerage is -2.6%, decrease than analysts’ expectations of -0.5%.
The revised outlook is predicated on an estimated price-to-earnings (P/E) ratio of 20 occasions calendar yr 2025, which is in step with CIENA’s historic vary. BofA Securities’ evaluation acknowledged administration’s sturdy feedback from the final earnings name, however famous that the precise monetary numbers did not match the optimism. The corporate additionally expects CIENA’s gross margin to fall to round 43%, in contrast with Wall Avenue’s forecast of 44.7%.
The downgrade displays issues about potential execution dangers subsequent yr. Though market analysts predict that income will develop by 8% in fiscal 2025, BofA Securities predicts extra conservative annual income development within the subsequent two years, at 7% and 6% respectively.
To attain optimistic market expectations, orders want to extend by 13-18%, which requires a major enhance in spending by service suppliers.
Regardless of near-term challenges, BofA Securities believes CIENA is well-positioned in the long run to capitalize on its expanded partnerships with cloud suppliers. Nevertheless, the corporate famous that CIENA’s inventory worth has topped the $60 mark solely as soon as previously 5 years.
Given the listed dangers and restricted historic share worth development, BofA Securities believes CIENA’s present potential for important inventory worth appreciation is proscribed.
In different latest information, CIENA Company reported sturdy fiscal third-quarter outcomes, with income of $942 million and adjusted earnings per share of $0.35. In accordance with statistics from Rosenblatt Securities, CIENA’s orders in the identical quarter have been near US$1 billion, exceeding expectations.
This growth signifies that there could also be a backlog of roughly $2 billion by the tip of fiscal 2024, laying the muse for the corporate’s development in fiscal 2025.
Stifel reiterated its “purchase” score on CIENA, highlighting the corporate’s sturdy momentum with communications service suppliers (CSPs) and enhancing spending dynamics amongst North American telecom service suppliers. CIENA’s fourth-quarter steerage suggests full-year 2024 income is predicted to be roughly $4 billion, in step with earlier forecasts.
CIENA maintains a optimistic enterprise outlook regardless of challenges within the routing and switching enterprise, notably within the worldwide service supplier phase. This optimism is supported by its excessive market share in submarine cables, the expansion of its Blue Planet enterprise line, and its greater than 65 world broadband clients. Lastly, the corporate introduced that Chief Monetary Officer Jim Moylan is retiring and is presently trying to find his successor.
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