On Monday, CFRA made adjustments to CIENA's (NYSE:CIEN) financial outlook, reducing the 12-month shares target from $55.00 to $50.00 while sustaining a Hold rating on the stock.
The revision reflects a more conservative valuation of 17.4 times the firm's FY 25 (October) earnings per share (EPS) estimate, which now stands at a discount compared to the company's five-year forward average price-to-earnings (P/E) ratio of 18.6 times. This change is due to a tempered growth forecast and current difficult market conditions.
CIENA's financial performance for the April quarter showed an operating EPS of $0.27, which, while surpassing the consensus by $0.16, was significantly lower than the previous year's $0.74. This decline is attributed to a notable 19.6% decrease in quarterly revenue.
The drop was led by a substantial 28.6% fall in the Optical Networking sector, an 11.0% decline in Routing and Switching, and a sharp 30.1% decrease in Blue Planet Automation Software and Services. These losses were slightly mitigated by a 23.1% increase in Platform Software and Services.
The revised EPS estimates for FY 24 have been lowered by $0.32 to $1.97, and for FY 25, the estimates have been reduced by $0.31 to $2.88. These adjustments come in the wake of the reported revenue decline and the ongoing challenges faced by the company.
Despite the setbacks, CIENA has indicated signs of improvement in the near term. However, the recovery of service provider order patterns is progressing more slowly than initially anticipated. Service providers are taking longer to utilize and deploy their extensive inventory, which is affecting CIENA's expected performance and recovery timeline.
In other recent news, CIENA reported a fiscal second-quarter revenue that surpassed expectations but also revealed a year-over-year decline. The company's earnings per share (EPS) of $0.27 exceeded the projected $0.15, despite a challenging comparison from the previous year.
However, CIENA adjusted its full-year FY24 total revenue forecast to the lower end of its previous guidance due to a slower recovery of service provider demand. Analysts from Argus, B.Riley, Needham, BofA Securities, and Stifel maintained their Buy ratings on CIENA, with various price targets, highlighting the company's potential for recovery and growth.
Despite a decrease in direct sales to webscale clients and sales to telecommunications companies, CIENA's management remains optimistic about the potential impact of AI traffic on its revenue stream. The company also expects its upcoming WaveLogic 6 Nano products to drive future growth. These are recent developments shaping CIENA's trajectory in the industry.
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