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Nomura has called Ciena Corporation (NYSE: CIEN) a contrarian play, as the company has disappointed for three straight quarters despite gaining share in a healthy optical market.
"Ciena's uneven execution, even if positive over the long term, leaves it a contrarian play," analyst Jeffrey Kvaal wrote.
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But, Kvaal stuck to his Buy rating, saying that he expects the gap between the solid market and low multiple to close. Furthermore, he sees Ciena's end market benefiting from growth in video, webscale traffic and the 100G optical cycle.
"We believe optical is gaining wallet share from routers; recent market data revealed 12 percent YoY growth in 1Q for optical vs. 2 percent for service provider routing. This includes the US (VZ metro), subsea, and in webscale with its recently launched WaveServer DCI product," the analyst said.
Kvaal noted that, despite its revenue miss, Ciena's first quarter share was above its 2015 share. Meanwhile, Ciena's operating margin has grew from a loss in 2010 to 11 percent in FY15 and Ciena's new intermediate-term target stands at 15 percent.
"A touch more conservatism might better insulate Ciena from the lumpy end market and, over time, allow for a sustainably higher multiple," Kvaal noted.
In addition, crisp execution, perhaps across a few quarters, may be needed to restore investor confidence.
"We believe Ciena is insulated from operator offers to reduce network cost and increase automation by centralizing network features to software in a data center—the photon will not be virtualized," Kvaal added.
Ciena reports its second-quarter results on June 2 before the market opens. The Street expects EPS of $0.27 on revenue of $630.74 million.
At time of writing, shares of Ciena were down 0.06 percent to $16.81. The analyst has a price target of $24 on the stock.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.