Ciena: Valuation And Opportunity Vs. Supply Chain And (Storm) Clouds

For what small comfort it offers, Ciena (NYSE:CIEN) has been among the better networking names since my last update, with the roughly 7% decline in the share price still better than the performance of a broader group of peers including Cisco (CSCO), Infinera (INFN), Juniper (JNPR), and Nokia (NOK), while Arista (ANET) and Lumentum (LITE) have done slightly better.

This underperformance can be tied back to the supply chain and component availability issues that are affecting the entire sector, reducing companies' ability to ship to demand and weighing heavily on margins. Not only that, some of the bloom is coming off of key end-markets, as spending from cable, cloud, and telco providers seems likely to slow in 2023.

Against that perhaps gloomy backdrop, I still see an argument for owning Ciena shares. The company has about a year's worth of revenue in its backlog and I believe the company has passed at least the halfway point in its supply challenges. Moreover, as the company gains share from Huawei and sells follow-on products into its base, I see more room for margin expansion. Priced for a double-digit long-term annualized return, I think this is a name to consider, albeit with some elevated near-term (two or three quarters) risk remaining.

 

To continue, click here: 

Ciena: Valuation And Opportunity Vs. Supply Chain And (Storm) Clouds