GS:CIEN is overvalued, entry pt is under $15
11/12/01
LOWERING 2002 ESTIMATES. We are revising our 2002 estimates to sales of $1.58 bln and EPS of $0.40 compared to our previous estimates of $1.8 bln and EPS of $0.55. The company did not comment on 2002 guidance, which is currently sales growth in the low teens (about $1.8 bln) and flat EPS ($0.59-$0.61); however we are lowering estimates for 3 reasons. 1) The primary factor behind our revision is company's exposure to long haul (currently 60%), which we believe could decline by about 30% in 2002. Major customers such as Q have recently indicated that they have sufficient optical transport capacity in their network backbones. Also, the company indicated that the majority of its 10% workforce reduction would be concentrated in long haul manufacturing, suggesting that the companies outlook for long haul sales has declined further since it last reported in July. 2) The outlook for the macro environment continues to be very poor. Major Ciena customers such as FON, Q, T, VZ, and TyCom have all made significant reductions to 2002 capital spending budgets. We believe overall capex levels could decline in excess of 20%. 3) While the acceptance of CoreDirector has been very strong, sales may be somewhat tempered by carriers such as AT&T and Qwest who are slowing down network builds. We continue to believe that CoreDirector sales will grow almost 100% to the $500 mil level in '02, but this number is lower than our prior estimate of $600 mil.
VALUATION. Ciena stock has more than doubled from its low of $9.20 in early October, and at $19, Ciena stock trades at over 40x our CY'02 EPS of $0.45. While we continue to believe that Ciena is the best pureplay to own in optical networking, we believe that Ciena stock is approaching fair valuation at these multiples. We would look for more attractive entry points under the $15 level where the stock will trade at pre-bubble networking EPS multiples of approximately 30x. |
