Ciena (CIEN) Down 3.7% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Ciena Corporation CIEN. Shares have lost about 3.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CIEN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Ciena Corporation reported first-quarter fiscal 2018 non-GAAP earnings of 15 cents, beating the Zacks Consensus Estimate of 12 cents but declining 42.3% year over year.

Revenues of $646.1 million increased 3.96% year over year and beat the consensus mark of $643.2 million.

Segmental Details

Product revenues (81.3% of revenues) were up 3.7% year over year to $525.6 million. Services revenues (18.7% of revenues) increased 5.2% year over year to $120.5 million.

Segment-wise, networking platforms (76.8% of total revenue) grew 1.2% year over year to $496 million. The company’s stackable data center interconnect platform, WaveServer, generated nearly $65 million in revenues and currently has more than 80 global customers.

In the quarter, the company witnessed seven new wins for its 400 gig per wavelength chip, Wavelogic AI, taking the total count to 17. The solution is gaining adoption mainly among the global Tier 1 service providers.

Ciena’s submarine business grew 10% year over year on strong webscale traffic growth.  The company signed two new deals for trans-pacific cable system and trans-Atlantic system in January.

The company’s non-telco business accounted for 35% of total sales this quarter, driven mostly by GCN.

Fiber Deep technology represents a big opportunity for the company driven by strong adoption of its products among all major cable operators in the global market. The company expects 5G network solutions to be a key driver in the long term.

Revenues from Software and software-related services (8.3% of total revenue) rose 36.1% year over year to $53.5 million, buoyed by rapid uptake of the Blue Planet analytics and orchestration platforms.

Global services revenues (15% of total revenues) increased a whopping 544% from the year-ago quarter to $96.6 million.

Region-wise, revenues declined 0.7% in North America and 1.7% in CALA but rose 6.9% in Europe, the Middle East and Africa (EMEA) and 24.6% in Asia Pacific. Growth in Asia is fueled by continued strength in India and key wins in Japan and Korea. The company is also optimistic about the prospects in India. Australia-based Telstra also holds considerable promise.

U.S. customers accounted for 59.3% of its revenues, of which 25% was contributed by two major customers — AT&T and Verizon. The company, however, expects shares of international customers to go up. Currently, two of them hold about 8-9%.

Margins

The company’s non-GAAP gross margin contracted 230 basis points (bps) year over year to 42.6%.

Ciena incurred non-GAAP operating expenses of $234.4 million, up 3.6% from the year-ago quarter. However, as a percentage of revenues, it decreased 10 bps from the year-ago quarter to 36.3%.

Non-GAAP operating margin declined 220 bps to 6.3%.

Balance Sheet

The company ended the quarter with cash, cash equivalents and short-term investments of $927.6 million, compared with $919.6 million at the end of the previous quarter.

Ciena generated operating cash flow of $35.7 million in the quarter compared with approximately $138.5 million last quarter.

Ciena repurchased 874K shares through Mar 5, 2018, for a total amount of $20 million.

Guidance

Ciena also issued guidance for second-quarter fiscal 2018. Revenues for the quarter are forecast in the range of $710-$740 million. Non-GAAP gross margin is anticipated in the low to mid-40% range. Non-GAAP operating expenses are projected at $240 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.

Ciena Corporation Price and Consensus

Ciena Corporation Price and Consensus | Ciena Corporation Quote

VGM Scores

At this time, CIEN has a poor Growth Score of F, however its Momentum is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise CIEN has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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