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
No comments:
Post a Comment