I'm not promoting any kind of acquisition rumor, but I do like to figure what you have to pay for a company vis-a-vis what you get.
If X were to buy CIEN at $50/share, it would have to pay $5B. For that, it would get about $600MM in revenues and annual net income approaching $150MM.
In contrast, it has been said that a minimum reasonable bid for ASND is say $50/share, for a cost of about $10B. For that, you get $1.2B in revenues and annual net income of about $200 to $250MM.
As the cost for CIEN would be half that of ASND, and as the revenues and income are about half as well (even a tad better than half), I do believe that $50/share is a fair current value for CIEN (and this totally discounts its heretofore torrid growth rate).
Looked at another way, acquisitions in this sector have gone off at about 8 to 10 times sales. That values CIEN at $4.8B ($48/share) to $6B ($60/share). Once again, this ignores CIEN's strong position in DWDM and its torrid growth rate (LU paid about 9 times sales for Livingston, and got nothing near the sales or the growth rate.)
Given either valuation approach (and these are just my crazy-Korn evaluations), I like being in CIEN at a price below $45. So I am.
On another note, the biggest danger signal to me is not LU's technology (there always will be new technology), but the heavy reliance upon so few customers. That said, I think the WCOM deferral is actually a blessing in disguise: It clearly is pushing CIEN to broaden its customer base, something it simply has to do if it is to become one of the big boys/girls.
Gary Korn |
