| Ciena's (CIEN) shares have plummeted 73% to a recent $10.07 in the past year as big customers AT&T (T), Verizon Communications (VZ) and Sprint Nextel (S) have delayed spending on the company's data-transport and switching products, hurting revenue and profits. As a result, Ciena, which supplies optical-switching products and Ethernet services used in the delivery of "triple-play" voice, video and data communications, now sees weaker-than-expected results for the remainder of this fiscal year, and that has thrown the outlook for 2009 into doubt. But the long-term outlook for data delivery is robust. Ciena also sits on a heap of cash, about $1B or $10 a share, and sports an exceedingly cheap valuation. Simon Leopold, an analyst at Morgan Keegan who had been cautious about Ciena because of its near-term challenges, now is bullish on its long-term outlook, calling the company a great "thematic" play. Leopold sees Ciena benefiting from fierce competition among telecom companies and an explosion in fiberoptic traffic, in particular demand for Web-based video, which will require more capacity. "You want to buy the arms merchant in the event of war," Leopold says of Ciena, whose fellow arms merchants include Alcatel-Lucent (ALU) and China's Huawei. Leopold thinks the company could earn $1.00 in CY09. He sees the stock trading at a multiple closer to 18x earnings once investors gain confidence in a rebound. Leopold's price target is $17.50. Bottom-line: With the market valuing Ciena's stock as if the worst is ahead, investors would do well to bet on Ciena's recovery. Reference Link :thef |
