On Friday, B.Riley adjusted its outlook on CIENA (NYSE: CIEN) shares, reducing the price target to $66 from the previous $68, while still endorsing the stock with a Buy rating.
The firm's analysis followed CIENA's financial results for the second fiscal quarter, which showed a year-over-year revenue decrease of 19.6%. Despite this, CIENA's shares experienced a slight uptick, contrasting with a minor drop in the Nasdaq index the day before.
CIENA reported F2Q revenue of $910.8 million with earnings per share (EPS) of $0.27, surpassing the consensus estimates which projected revenues of $896 million and EPS of $0.15.
However, the company's backlog decreased by $300 million quarter-over-quarter to $1.9 billion. Gross margin (GM) and operating margin (OM) were reported at 43.5% and 6.8%, respectively, a decline from 45.7% and 13.2% in the first fiscal quarter.
The company's forecast for F3Q revenue ranges between $880 million and $960 million, falling short of the consensus projection of $1.001 billion.
Expectations for GM and operating expenses (opex) in F3Q are anticipated to be in the low to mid-40% range and around $345 million, respectively.
Additionally, CIENA's management has set an approximate revenue target of $4 billion for fiscal year 2024, positioning at the lower end of its previous forecast range of a decrease between 9% and 2%.
Despite the lower outlook, the market response to CIENA's report was mildly positive, as the company noted early signs of recovery, particularly from North American service providers (NA SPs). This optimism is supported by a significant reduction in excess inventories and an uptick in orders during F2Q.
CIENA anticipates an improvement in orders throughout FY24, buoyed by the expected ramp-up of pluggables and the growth opportunities in 10G PON technology.
B.Riley also revised its EPS estimates for CIENA for fiscal years 2024 and 2025, decreasing them from $2.23 and $3.05 to $1.84 and $2.45, respectively. This adjustment reflects anticipated lower revenues and increased operating expenses.
The new price target of $66 is based on an enterprise value (EV) to sales multiple of 2.3 times the FY25 revenue estimate, adjusted for net debt.
The firm also noted that CIENA's data and commentary on improving demand trends are a positive signal for the industry, specifically highlighting Infinera (NASDAQ: NASDAQ:INFN) with a Buy rating and a $9 price target.
While CIENA is favored as a telecom recovery pick, B.Riley expressed a preference for Infinera due to its stronger industry catalysts and potential for greater bottom-line leverage.
In other recent news, CIENA Corporation reported stronger-than-expected results for the second quarter of fiscal year 2024, surpassing consensus by 2% and $0.13 on revenues and earnings per share, respectively.
Despite this, the company revised its forecasts for the third quarter and full year due to factors such as customer inventory consumption and broader economic conditions.
Rosenblatt Securities adjusted the price target on CIENA shares to $54.00, while maintaining a Neutral rating. Concurrently, CIENA received a Buy rating from Needham, BofA Securities, and Stifel, with price targets of $60, $59, and $62 respectively.
In response to these developments, the aforementioned firms have revised their fiscal year 2024 estimates to align with CIENA's outlook.
The company also secured a significant design win with a North American Tier 1 service provider and anticipates its upcoming WaveLogic 6 Nano products to drive future growth.
The management of CIENA is optimistic about the potential impact of AI traffic on its revenue stream. These are among the recent developments shaping CIENA's trajectory in the industry.
InvestingPro Insights
As CIENA (NYSE: CIEN) navigates through a challenging fiscal quarter, real-time data from InvestingPro provides a deeper understanding of the company's financial health and market position. With a current market capitalization of approximately $7 billion and a P/E ratio of 27.44 based on the last twelve months as of Q1 2024, CIENA is trading at a valuation that suggests a robust free cash flow yield, according to InvestingPro Tips. This aligns with the company's aggressive share buyback strategy, which can be indicative of management's confidence in the company's value proposition.
InvestingPro data also highlights a revenue growth of 13.6% over the last twelve months as of Q1 2024, which, despite a slight quarterly dip, demonstrates CIENA's capacity to expand its financial top-line in a competitive sector. Moreover, the company's gross profit margin stands at a strong 43.27%, reinforcing its ability to maintain profitability amidst market fluctuations.
For investors seeking further insights, InvestingPro offers additional tips on CIENA, including the company's moderate debt levels and liquidity position, which ensure financial flexibility. Analysts on InvestingPro predict CIENA will stay profitable this year, an important factor for investors to consider. To explore these tips and more, visit https://www.investing.com/pro/CIEN and take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 6 additional InvestingPro Tips available, investors can make more informed decisions backed by comprehensive analysis.
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