Ciena Corporation CIEN is set to report fourth quarter fiscal 2015 results on Dec 10. Last quarter, the company delivered a positive earnings surprise of 7.41%. However, the company has delivered an average negative earnings surprise of 45.65% in the trailing four quarters. Let’s see how things are shaping up for this announcement.
Factors to Consider
Ciena’s revenues have benefited from a strong demand for packet-optical transport and switching products, integrated network and service management software. We believe higher spending on optical upgrades and higher number of orders from international customers will continue to boost Ciena’s top line going ahead. Additionally, the diversification of its customer base and expansion of the addressable market will be major growth drivers, going forward.
Growing demand for cloud-based on-demand networking capabilities is also likely to bode well for the company. Mobile bandwidth consumption is expected to rise phenomenally, thereby providing more growth opportunities for the company. Ciena also has taken the help of acquisitions and alliances to expand its addressable market and enter new growth segments.
Moreover, Ciena’s focus on cost-cutting initiatives is expected to drive bottom-line growth. The company expects its operating expenses for fiscal 2015 to be less than $820 million, in line with the guidance provided earlier.
Nonetheless, Ciena’s highly leveraged balance sheet may adversely affect its profitability, going forward. Moreover, we believe that any further decline in the top line, particularly amid stiff competition from Cisco CSCO, Juniper Networks, Inc. JNPR and others can weigh on its financials.
Ciena forecasts revenues in the range of $665 million to $700 million for the fourth quarter. Non-GAAP gross margin is projected to be about 44%. Ciena expects non-GAAP operating expense of approximately $225 million for the fourth quarter.
Earnings Whispers?
Our proven model does not conclusively show that Ciena will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 35 cents. Hence, the difference is 0.00%.
Zacks Rank: Ciena’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are a couple of stocks, which you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:
Korn/Ferry International KFY, with an Earnings ESP of +1.92% and a Zacks Rank #1 (Strong Buy).
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