Ciena Shares Rally Amid Growing Optimism
NEW YORK (Reuters) - Ciena Corp. (Nasdaq:CIEN - news) shares continued a four-day rally, rising nearly 16 percent Wednesday amid growing optimism that the telecommunications equipment maker's business has stabilized and its financial outlook is improving, analysts said.
Ciena, the most actively-traded Nasdaq issue with more than 27 million shares changing hands, hit an intraday high of $29.25 -- its highest level in about six months -- but settled slightly to $27.25, up $2.625. The stock has gained about 37 percent over the past four trading sessions and about 90 percent so far this year.
Ciena, which makes equipment that increases the capacity of fiber optic networks, had struggled over the past seven months since its proposed acquisition by rival Tellabs Inc. (Nasdaq:TLAB - news) fell apart and it lost its chance for a potential AT&T Corp. (NYSE:T - news) contract.
Last week, Linthicum, Md.-based Ciena showed signs of improvement and posted better-than-expected first quarter earnings as it expanded its customer base. Ciena also offered a cautiously optimistic outlook for the second half of the year.
Robertson Stephens analyst Paul Silverstein Wednesday upgraded Ciena's rating to buy from long-term attractive, citing improving gross margins, pricing stabilization and increased customer activity.
Silverstein also said in a research report that demand for Ciena's products -- dense wave division multiplexing (DWDM) equipment used to increase capacity on fiber optic networks -- has increased over the past several months.
While Ciena faces tough competition from larger rivals such as Lucent Technologies Inc. (NYSE:LU - news), Ciena is the only manufacturer that has rolled out a 40-channel version, analysts said. Ciena recently announced its first customer for a more powerful 96-channel version.
Ciena recently won a victory over its competitors after its current customer Sprint Corp. (NYSE:FON - news) decided to continue using Ciena products through 1999 instead of seeking a second vendor.
Sprint, the No. 3 U.S. long distance company, had been testing the products of other equipment makers, such as Lucent and Alcatel Alsthom, but decided to stay with Ciena for the rest of the year, Sprint spokesman Charles Fleckenstein said Wednesday.
In addition to strengthening its relationship with existing customers, analysts expect Ciena to continue to expand its customer base.
Silverstein said in his research report he was cautiously optimistic MCI WorldCom Inc. (Nasdaq:WCOM - news) may return as a significant customer. MCI WorldCom, the No. 2 U.S. long distance company, accounted for about $4 million or 4 percent of Ciena's revenues last quarter.
A year ago, MCI WorldCom accounted for about 23 percent of Ciena's revenues, but the company scaled back its purchasing plans after it shifted to a just-in-time purchasing and deployment method.
Analysts also expect Ciena's gross margins to improve. Last week, Ciena told analysts in a conference call it expected its gross margins to improve to the mid-40s range from the current level of 34 percent.
Silverstein said Wednesday he expects Ciena's gross margins to improve to the 40-percent level by the fourth quarter of this year.
Earlier Stories
Ciena Shares Continue Rally On Growing Optimism (February 24)
Ciena's Profits Plunge, But Beat Forecasts (February 19) |
