Ciena (CIEN) Down 5.9% Since Last Earnings Report: Can It Recover?

It’s been about a month since Ciena’s (CIEN) last earnings report. Shares have lost about 5.9% in that time, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ciena due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Ciena’s first-quarter earnings beat estimates, revenues increased y/y

Ciena reported strong first-quarter fiscal 2020 earnings, with both the top and bottom lines beating the Zacks Consensus Estimate. Higher segment revenues driven by a diversified customer base, technological advancements and market share gains contributed to Ciena’s results.

Net income

On a GAAP basis, net income for the quarter was $62.3 million, or 40 cents per share, compared with $33.6 million, or 21 cents per share, in the year-ago quarter. The year-on-year improvement was mainly due to the increase in revenues.

Quarterly adjusted net income was $81.7 million, or 52 cents per share, compared with $52.8 million, or 33 cents per share, in the prior-year quarter. The earnings beat the Zacks Consensus Estimate by 14 cents.

Revenue

Total quarterly revenues increased 7% year-over-year to $832.9 million due to higher segment revenues and product sales. Ciena had two customers at more than 10% in the quarter, accounting for 24% of revenue. The top line topped the consensus estimate of $822 million.

Regionally, revenue in the Americas was $574 million, up 11.2% year-over-year, driven by solid service provider activity in North America, which includes two 10% customer additions, Verizon and AT&T. Increased revenues from multiple system operators also impacted performance. Revenues from Europe, the Middle East and Africa were $130 million, up 0.6% from $129.2 million in the year-ago quarter, driven by increased market share. Asia-Pacific revenue was $128.9 million, down 3%, primarily due to the impact of the Covid-19 virus in China.

Quarterly segment results

Revenue from Network platforms increased 6.2% year over year to $659 million, mainly due to new product launches. Platform software and services revenue was $51.9 million compared to $41.6 million in the prior-year quarter. Blue Planet Automation software and services revenue increased from $15 million to $15.5 million, mainly due to two big wins from Tier 1 service providers outside the United States. Revenue from Global services amounted to USD 106.5 million compared to USD 101.4 million a year ago.

Other details

Adjusted gross margin was 45.1% compared to 42.2% in the year-ago quarter. Adjusted operating expenses were $266.4 million, up from $253.6 million. Adjusted operating income increased to $109.4 million from $74.6 million. Adjusted operating margin was 13.1% compared to 9.6% in the prior-year quarter. Adjusted EBITDA was $135.3 million, up from $96.2 million.

Cash flow and liquidity

In the first three months of fiscal 2020, Ciena generated $39.8 million of net cash from operations compared to $14.1 million of net cash burn in the prior-year quarter. As of January 31, 2020, the company had $837.3 million in cash and cash equivalents and $680.8 million in net long-term debt. During the reported quarter, Ciena repurchased nearly 1.3 million shares for a total consideration of $50.7 million.

Conductivity

Ciena provided guidance for the second quarter of fiscal 2020 and full year 2020. For the fiscal second quarter, revenue is expected to be between $875 million and $905 million, which includes a reduction of nearly $30 million due to the anticipated impact of the coronavirus. Adjusted gross margin will likely be in the range of 42-44% and adjusted operating costs will be approximately $275 million.

Throughout 2020, revenues are expected to grow at an annual rate of 6-8%. Adjusted gross margin will likely be in the 42-44% range. Adjusted operating margin is estimated at 15% with adjusted operating expenses of $270 million to $275 million quarterly.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month. As a result of these changes, the consensus estimate moved by -13.35%.

VGM results

Currently, Ciena has an average Growth Score of C, although it lags slightly behind its Momentum Score of D. Plotting a somewhat similar path, the stock is rated a C on the value side, placing it in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Ciena has a Zacks Rank of #2 (Buy). We expect an above-average rate of return on shares in the coming months.

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