Nortel Deal Transformative, Says Cowen
By Eric Savitz
Friday, March 5, 2010 ET.
Ciena Jumps 10%
Shares of Ciena (CIEN) are up $1.40, or 10%, at $15.37 after Cowen & Co.’s John Marchetti this morning upgraded the stock to “Outperform” from “Neutral,” noting he thinks there’s 40% to 50% upside to the stock over the next 12 months.
The primary idea is that Ciena’s pending acquisition of Nortel’s (NRTLQ) ethernet networking product business, which is expected to close this month.
The acquisition gives Ciena a boatload of revenue — the division had $798 million in revenue in the first 9 months of last year — and Ciena will see increased spending from carriers on optical networking in cities, backhaul of wireless services, and ethernet networking for business clients, and that Ciena, with Nortel, is better positioned to supply those products.
The pending acquisition of Nortelís optical franchise, which is roughly the same size (excluding services) as Ciena today, will clearly be a transformative deal that brings significant execution and balance sheet risks, but also meaningful revenue and EPS upside if Ciena executes successful.
Consequently, Marchetti raised his numbers way, way up, with revenue for this year almost double what he’d previously estimated, at $1.4 billion, and $2.1 billion in 2011. Marchetti changed his EPS estimate this year from break-even to a loss of 27 cents, as it is going to take some time for “operating leverage” to kick in from the Nortel deal. |
