S&P Stock Report for CIEN (excerpt)
Overall Rating 2/5 stars
<<Analysis prepared by Ari Bensinger on March 04, 2010, when the stock traded at $ 13.78.
Highlights
ä Following a 28% decline in FY 09 (Oct.), we see
sales advancing 20% in FY 10, to $780 million, on
a rebound in demand for optical products as
the economy improves.We are not incorporating
the pending acquisition of Nortel's Metro
Ethernet Networking (MEN) business in our financial
model until it closes, which is expected
early in the second quarter of FY 10.We estimate
that the Nortel business, with annual
sales of about $1 billion, could add nearly $700
million to FY 10 sales.
ä We see FY 10 gross margins widening 300 basis
points from FY 09, to 47%, on higher sales volume
and manufacturing efficiencies.We look
for FY 10 operating expenses as a percentage
of sales to decline from FY 09 levels on cost
management programs, despite increased investment
to support higher prototype costs.
ä After interest expense and minimal taxes expected
(due to loss carryovers), we project an
FY 10 operating loss of $0.47 per share, including
$0.38 of stock option expense, compared to
the $0.51 loss posted in FY 09, which excludes
$5.86 of non-recurring items, mostly related to
goodwill impairment charges.
Investment Rationale/Risk
ä We are positive on CIEN's long-term prospects
given our forecast for a material increase in
bandwidth demand. Still, we think the pending
acquisition of Nortel's MEN business contains
material execution risk given its large revenue
and employee base and sizable product overlap.
From a liquidity standpoint, we see the $521
million purchase price, which includes $390 million
cash, significantly straining the balance
sheet.We also see the likelihood of CIEN raising
additional capital to replace the $239 million
convertible note to be issued as part of the
MEN purchase given its high coupon rate.
ä Risks to our recommendation and target price
include an upturn in telecom spending, fasterthan-
expected sales from new products, and a
quicker than expected integration of the pending
Nortel asset acquisition.
ä Our 12-month target price of $11 equals roughly
2X book value and 1.3X our FY 10 sales per
share estimate, valuation metrics that are below
peers, warranted, in our view, by the company's
poor sales visibility, continued operating
losses, and the MEN acquisition integration
risk.>>
fyi
Woody
I'll try to get the recent Credit Suisse Report next. |
