We expect Ciena Corporation CIEN to beat estimates when it reports second-quarter 2015 results on Jun 4. Last quarter, the company delivered a positive earnings surprise of 150.00%. The company delivered positive earnings surprise in three out of the last four quarters, bringing the average to a negative earnings surprise of 36.25%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Ciena is likely to beat earnings estimates because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +21.43%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Ciena has a Zacks Rank #1 (Strong Buy).
Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
The combination of Ciena’s Zacks Rank #1 and +21.43% ESP makes us confident of an earnings beat this quarter.
What is Driving the Better-than-Expected Earnings?
We believe higher spending on optical upgrades and higher number of orders from international customers will boost Ciena’s top line in the second quarter. 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.
In the last quarter, Ciena received contracts from major telecommunication players like Windstream Holdings, Inc. WIN, which is likely to drive growth in the to-be-reported quarter.
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 and others can weigh on its financials.
Stock to Consider
Here's a stock worth considering that, as per our model, has the right combination of elements to post an earnings beat this quarter:
Burlington Stores Inc. BURL, with an Earnings ESP of +5.00% and a Zacks Rank #3 (Hold).
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