William Blair Chimes in on Ciena Corporation (CIEN) Following F3Q:16 Results

Ciena Corporation (NYSE:CIEN) posted results for its fiscal third-quarter performance yesterday that has left William Blair analyst Dmitry Netis finding “many positives to cheer for.” As such, he reiterates an Outperform rating on shares of CIEN, despite revenue underperforming by the Street’s expectations.

The fiber-optic networking firm closed the quarter with $670.6 million in revenue, mirroring Netis’ projection, but about $1.6 million beneath the Street’s estimate. CIEN reported an EPS beat, at $0.42 that outclassed Netis’ expectation by $0.03 and consensus by $0.04, which the analyst attributes to product mix bringing about strong gross margin as well as lower operating expenses.

Meanwhile, fourth-quarter revenue “bracketed” the Street, and Netis notes the midpoint of the forecasted revenue range of $700 million to $730 million falls $5 million short of his projection and $7 million under consensus. Yet, the analyst believes investors should not be concerned, as Netis points to “surprisingly strong operating leverage,” indicating a 13.5% increase, and 46.8% gross margin increase. Additionally, Netis highlights “what appears to be share gains in various segments of the business (metro, submarine, and Web 2.0).”

Netis’ fiscal 2016 EPS maintains at $1.42, but lowers revenue by $6 million to $2,597 million. However, his fiscal revenue estimate for 2017 stays at $2,764 million, whereas Netis raises EPS guidance to $1.65.

“With the risk/reward profile weighted toward consistent year-over-year execution […] optical market trends healthier than ever albeit always lumpy but in early innings of the once-in-a-decade 100G metro optical upgrade and packet-optical convergence cycle, and valuation at still very attractive levels […] investors ought to give management and the stock a little more credit (and better multiple), in our view. In addition, the business is nearing an inflection point with retirement of debt and a net cash balance sheet next year, which could serve as an upside to earnings and a catalyst to the stock,” he concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Dmitry Netis is ranked #338 out of 4,132 analysts. Netis has a 59% success rate and realizes 7.1% in his yearly returns. When recommending CIEN, Netis earns 2.5% in average profits on the stock.

TipRanks analytics demonstrate CIEN as a Strong Buy. Based on 13 analysts polled in the last 3 months, 10 rate a Buy on CIEN, while 3 maintain a Hold. The consensus price target stands at $24.85, marking a 10% upside from where the stock is currently trading.

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