We maintain a Hold rating on the shares of Ciena Corp. (CIEN). The company reported strong margins in the first half of FY 2008, and looks poised to maintain this throughout the year.
Its FlexSelect products allow carriers to transition networks to carrier-grade Ethernet, one of the fastest growing technologies in telecommunications. In order to expand its Ethernet offering from infrastructure throughout the network, including metro and customer premise locations, Ciena completed the acquisition of World Wide Packets.
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 in spite of a recent pull-back.
Ciena is currently trading at 18.2x estimated 2008 EPS, in-line with the industry median. However, with economic uncertainty in 2008, telecom carriers could potentially curtail some of their spending in the second half of the year. We therefore lower our six-month price target to $24.50. This price is based on P/E multiple of 18.3x our 2008 EPS estimate of $1.34, a discount to the industry mean.
Read the full analyst report on CIEN
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