Ciena Passes Key Test with Flying Colors
By Jay Ritter
What Happened?
Ciena (Nasdaq: CIEN - news) posted better-than-expected revenue and earnings for its fiscal fourth quarter, ended October 31, driven by continued strong growth in its core markets, the addition of several major customers, and growing acceptance of its new products. Revenue of $288 million was up 23% from the previous quarter and 100% year over year. Earnings of $0.14 per share, excluding one-time items, beat the First Call consensus by $0.02. Although profit margins were a bit weaker than expected, the company said they should gradually improve as Ciena brings on additional manufacturing capacity and expands new product revenue. On Thursday morning's conference call, management reiterated its bullish outlook and raised its fiscal 2001 earnings forecast by $0.04-$0.07 per share from the current $0.64 consensus.
What It Means for Investors
Ciena's fundamentals appear to be improving and, while the stock is likely to remain volatile given its hefty valuation and the market's widespread concerns about telecom capital spending, the company is one that aggressive investors would be wise to keep on their radar screens, in our opinion.
Ciena remains one of the best-positioned optical-networking pure plays, with an expanding customer roster and broad product portfolio that make it arguably less susceptible to nasty surprises than many of its more narrowly focused competitors. The company added 4 customers this quarter, bringing its total to 42. Its solid relationships with major carriers like Qwest (NYSE: Q - news) continue to provide new opportunities to sell its advanced optical gear, and while concerns about the financial difficulties facing some of its emerging-carrier customers haven't gone away, Ciena's exposure to this risk appears manageable. For one, Dynegy's (NYSE: DYN - news) purchase of the assets of iaxis, a bankrupt U.K.-based carrier and former customer, should provide a stable new source of revenue. In addition, Global Telesystems (NYSE: GTS - news), another financially strapped provider of broadband services across Europe that had been a significant customer until recently, isn't being counted on to provide much revenue in 2001.
Jay Ritter can be reached at jay_ritter@morningstar.com. |
