Saturday, September 6, 2014

Seeking Alpha: Ciena Goes Back Into The Penalty Box

When I cooled on Ciena (NYSE:CIEN) six months ago, my concerns were largely about valuation and the risk that market expectations were getting a little hot for a company that still had some real challenges in boosting margins (not to mention competing with the likes of Huawei, Alcatel Lucent (NYSE:ALU), and Infinera (NASDAQ:INFN)). I didn't expect a 23% fall, though, and the reaction to Ciena's disappointing fourth quarter guidance seems a bit much.

To buy Ciena today I think you need to have confidence that the upgrade cycle is going to last at least five years, that non-traditional customers (like Web 2.0 companies) will continue to represent a growth opportunity, that Cisco's (NASDAQ:CSCO) efforts to move down the stack will only go so far, and that Ciena can leverage the Ericsson (NASDAQ:ERIC) partnership to improve its OUS share and its overall margins. That's a lot to digest, and I don't want to suggest that you have to accept all of that to be more bullish than the Street, but if Ciena can reach (and keep) a double-digit FCF margin and generate long-term revenue growth in the mid-single digits, these shares are getting interesting again.

Read the full article here:
Ciena Goes Back Into The Penalty Box

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