Ciena's Business Should Ramp From Here

Recommending purchasing Ciena (CIEN) when it trades into the low $20s and then lightening up in the mid-to-high $20s has worked relatively well for a little while now, but I’m starting to wonder if Ciena may be about to take that next step where the mid-$20s become the “new low $20s” and where the Street has more confidence in the growth outlook for the company’s converged packet business, as well as more confidence that margins will recover in the coming quarters.

Although there’s a lot left to prove, Ciena has taken some good initial steps towards demonstrating that it has an attractive business outside of Verizon (VZ) and AT&T (T), including data center, tier-2 communications, cable, and non-US customers.

I don’t think these shares are dramatically undervalued, but I think a double-digit annualized return is possible from here (even if just barely double digit). I would note, though, that I’m not giving the company full credit for management’s mid-term growth and margin targets; if the near-term performance justifies more faith in that vision/projection, there would be additional upside.

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Ciena's Business Should Ramp From Here