A Hold recommendation has recently been issued to fiber optics manufacturer Ciena Corporation (CIEN) by Zacks senior fiber optics analyst Steve Biggs, CFA. Here's what his latest update said:
'Ciena Corp. has come a long way since its early stages of providing next generation networking equipment to emerging long-distance carriers. Today, its FlexSelect products allow carriers to transition networks to carrier grade Ethernet across the network. With a strong product offering and broad customer base, Ciena's revenue has grown at a CAGR of 38% over the past three years.
'However, we believe that expectations are very high as a result, and investors were disappointed with projected revenue growth of 20% in 2008. As a result of overly high expectations, we initiate coverage of CIEN with a Hold rating and a six-month price target of $37. Ciena has experienced a rapid re-acceleration of revenue and profits, driving the stock price up dramatically over the past several years. While we are impressed with recent results from the company, we are concerned that expectations have become very high.
'Moreover, with economic uncertainty in 2008, telecom carriers could potentially curtail some of their spending in the second half of the year. Ciena is currently trading at 24.3x estimated 2008 EPS, which we believe is a very reasonable multiple given that it is a discount to its peer group.
'In order to become more positive on CIEN shares, we would like visibility into rising revenue in the second half of the year, or improved gross margins. We, therefore, re-launch coverage of Ciena with a Hold rating and a $37 price target, which represents a multiple of 25.5x 2008 EPS estimate of $1.45.'
Read the full analyst report on CIEN.
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