The last couple of months have not been so great for Ciena’s (CIEN) share price performance, and the same is true on a year-to-date basis, as a broad comp group of Cisco (CSCO), Juniper (JNPR), and Nokia (NOK) have noticeably outperformed, while other comps like NeoPhotonics (NPTN) and Infinera (INFN) have had their own struggles.
I believe the main driver of this lagging performance is soft near-term guidance from management that supply constraints are going to prevent the company from shipping to underlying demand. I also believe the prospect of increased competition from coherent pluggables is a concern to some analysts and investors, though I’ve maintained for a while that I think the magnitude of the threat is likely both exaggerated and manageable by Ciena.
The lack of near-term upside is definitely a drawback, but I still like Ciena. Service providers will continue to spend on network expansion/upgrades, and the company continues to make inroads in the enterprise (Webscale) market. The Huawei replacement opportunity is still in place as a driver, as are opportunities to gain share in edge routing. All in all, I still expect mid-single-digit revenue growth and I see double-digit annualized return potential at today’s price.
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Ciena Struggling A Bit With Capped Near-Term Upside And Competitive Worries
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