CIENA Corp. (CIEN) Neutral [V] P. Silverstein
CP: US$ 6.05 TP: US$ 8 CAP: US$ 675.7m
FY4Q08 Earnings Results, Lowering Estimates and Target Price to $8 (from $12) (CS)
• Investment Thesis. Near-term, CIEN faces an ongoing challenging carrier capex outlook. Longer-term, CIEN retains a strong
competitive position in the next-gen optical infrastructure market, which should continue to benefit from network upgrades and
re-architecture by service providers being driven by Web-based video.
• Results. Rev/PF EPS (ex ESO) of $179.7mln/$(0.10) v. our $200.0mln/$0.04 and Street consensus's $198.8mln/$0.06
estimates.
• Guidance. FY1Q09. Expects Rev/GM of approximately $170-185mln/mid-to-high 40s v. our $203mln/47.5% and consensus's
$191mln/47.9% previous estimates.
• CS Outlook. We reiterate our Neutral rating. On the one hand, we see no immediate catalyst to drive shares higher in the
near-term given our concerns regarding carrier capex, the scale of the disappointing FY1Q09 guidance and lack of visibility as
to timing and scope of recovery. To this end, we are slashing our rev and earnings estimates as we expect further
deterioration in CIEN's operating model until the macro-economic environment and carrier capex begin to improve. On the
other hand, CIEN is still a leading supplier in one of the few growth pocket segments of the carrier infrastructure market. We
also do not believe that the current capex issues are analogous to the 2001 bubble period given that most carriers appear to
have shifted to a just-in-time success-based bandwidth provisioning model, with relatively limited equipment inventory.
Meanwhile, underlying bandwidth growth trends remain positive driven by web-based video, Telepresence and other high-def
enterprise video-conferencing systems, and increasing availability and use of true 3G wireless devices that are driving
incremental bandwidth on the wireline backhaul portion of wireless operators' networks.
• Estimates. We have revised our Rev/PF EPS (ex-ESO) est.s to $631mln/$(0.40) from $850mln/$0.20. We are introducing our
FY10 estimates of $685mln/$(0.25).
• Valuation. Our new $8.00 12-month target price is driven by applying a 1.0x EV/Rev multiple to our revised FY09 forecast and
adding back $275mln of net cash.
• Highlights. (1) Macro. CIEN lowered FY1Q09 rev guidance to $170-185mln-meaningfully below our $203mln and consensus's
$191mln previous est.s-due to a continuing challenging capex environment and limited visibility in 2009. CIEN argues that
carriers are postponing as opposed to cancelling projects. (2) Rev Mix. CN4200 posted record revenue and now counts over
50 customers. CoreDirector, long-haul, and WWP, however, each declined approximately 50% or more Q/Q and fell well short
of our forecasts. CIEN pushed back projected AT&T rev from WWP deployment to late FY09. (3) Cash. CIEN kept cash burn
to less than $5mln and projects lower-albeit unquantified-opex in FY1Q09. |
