On Wednesday, Morgan Stanley (NYSE:MS) adjusted its stance on CIENA (NYSE:CIEN), raising the stock's rating from Equalweight to Overweight and increasing the price target to $55 from $53. The firm's outlook is based on the belief that fiscal year 2024 (FY24) estimates for CIENA are now less risky, and there is a potential for upside in fiscal year 2025 (FY25).
The analyst noted that prior to the fiscal quarter two (FQ2) earnings report, there were concerns regarding the Street's estimates, which anticipated a significant pickup in growth in the second half of the year. These estimates assumed a double-digit sequential growth in fiscal quarters three and four, dependent on an upturn in the telecommunications market.
Morgan Stanley has since revised its full-year revenue estimate for CIENA downwards by approximately 4% to reflect ongoing inventory adjustments and sustained caution from international customers due to macroeconomic factors. The firm believes that with these revised expectations, CIENA's current valuation is more reasonable.
Despite the revision, Morgan Stanley remains optimistic about CIENA's performance for the remainder of the year. The firm acknowledges that a roughly 23% sequential increase in fiscal quarter four (FQ4) will be necessary to meet the full-year objectives.
However, the analyst points out that telecommunications orders and revenue have already shown sequential improvement in FQ2. Additionally, strong cloud engagement is expected to continue, particularly in the second half of the year compared to the first half, and the company still has a backlog of about $1.9 billion.
In other recent news, Ciena (NYSE:CIEN) Corporation faced a significant reduction in its shares target from CFRA due to slower market recovery. The company's April quarter financial performance unveiled an operating EPS of $0.27, surpassing the consensus by $0.16, but significantly lower than the previous year's $0.74 due to a 19.6% decrease in quarterly revenue. Analysts from Argus, B.Riley, Needham, BofA Securities, and Stifel maintained their Buy ratings on Ciena, underlining the company's potential for recovery and growth.
Ciena's management remains optimistic about the potential impact of AI traffic on its revenue stream and expects its upcoming WaveLogic 6 Nano products to drive future growth. B.Riley reduced its price target for Ciena shares to $66 from the previous $68, while Needham adjusted its price target for Ciena shares to $60 from the previous $65. Despite the adjustments, both firms maintained a Buy rating on the stock.
In other recent developments, BofA Securities maintained its Buy rating on Ciena with a steady price target of $59.00. The company's earnings per share (EPS) outperformed expectations, coming in at $0.27 compared to the predicted $0.15, attributed to a higher gross margin of 43.5% and controlled operating expenses. These are the recent developments shaping Ciena's trajectory in the industry.
InvestingPro Insights
Morgan Stanley's recent upgrade of CIENA (NYSE:CIEN) to Overweight with a price target of $55 reflects a positive outlook for the company's fiscal year performance. In line with this perspective, CIEN's current market capitalization stands at around $6.6 billion, suggesting a significant presence in its sector. Moreover, the company's P/E ratio, which has adjusted to 35.47 over the last twelve months as of Q2 2024, indicates a market expectation of earnings growth despite the company trading at a high multiple. This could be seen as aligning with Morgan Stanley's anticipation of upside potential in FY25.
InvestingPro Tips highlight that management's confidence is evident through aggressive share buybacks, and although analysts have revised their earnings downwards for the upcoming period, CIEN is expected to remain profitable this year. Additionally, the company's liquid assets surpassing short-term obligations suggests a strong balance sheet. For readers looking to delve deeper into CIEN's financial health and future prospects, InvestingPro offers a comprehensive suite of additional tips. Currently, there are 9 more InvestingPro Tips available which could provide further insights into CIEN’s performance and market position.
Investors considering CIENA's stock may also take note of the company's low price volatility, which could be an attractive attribute for those seeking stability. With the next earnings date set for August 29, 2024, and an analyst fair value target of $57, which is above the current price, CIENA could offer potential for growth. Readers interested in a more detailed analysis can take advantage of an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro by using the coupon code PRONEWS24.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.