On Jul 3, 2014, Zacks Investment Research upgraded telecom equipment maker Ciena Corp (CIEN) to a Zacks Rank #1 (Strong Buy). A strong return of almost 13.0% over the last one year, long-term expected earnings growth rate of 16.7% and a positive estimate revision trend make Ciena an attractive investment opportunity.
Why the Upgrade?
Ciena reported mixed second-quarter 2014 results. The company reported earnings of 6 cents per share (excluding share-based compensation and other one-time items) as against a loss of 7 cents reported in the year-ago quarter. Earnings, however, managed to beat the Zacks Consensus Estimate of 3 cents.
However, revenues of $560.1 million lagged the Zacks Consensus Estimate of $562.0 million. More importantly, orders were up 7.0% on a year-over-year basis. Management expects order flow to increase from the second quarter and remain strong during 2014.
We believe that increasing spending on optical upgrades and higher number of orders from international customers will boost top-line growth in fiscal 2014. Moreover, the company’s Tier 1 contract wins and strong backlog are expected to boost near-term results.
Additionally, the diversification of customer base will be a major growth driver in the long run. Further, partnership with the likes of Ericsson, Brocade Communications (BRCD) and Equinix Inc (EQIX) is a significant positive that will solidify its position in the software defined network (SDN) market over the long run.
Estimate Revision
The Zacks Consensus Estimate for fiscal 2014 increased 10.0% (5 cents) to 55 cents per share over the last 30 days. For fiscal 2015, the Zacks Consensus Estimate increased 5.2% (5 cents) to $1.02 over the same time frame.
Other Stocks to Consider
Another player in the technology industry, which looks attractive at current levels, is Citirix Systems (CTXS) carrying the same Zacks Rank as Ciena.
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