Analyst Cautions On Ciena's Short-Term Hiccups, But Says Long-Term Growth Prospects Outweigh

Needham analyst Alex Henderson reiterated a Buy rating on Ciena Corporation CIEN, lowering the price target to $50 from $60.

Ciena lowered expectations on the April-quarter print in late May, noting Service Providers and Cloud customers were pushing out delivery schedules.

The analyst notes that service Provider inventory corrections have put a damper on the solid growth at Ciena. 

Henderson thinks this will take a few more quarters to play out likely seeing a recovery in Ciena's April quarter FY2Q24. 

Going ahead, the analyst thinks Ciena will offer even more conservative guidance when it prints July-quarter results. 

However, supply Chain improvements allowed it to ship more products to customers against a large Backlog. Ciena noted other vendors also shipped more to customers, resulting in customers seeing more products come in than they can handle. This, in turn, resulted in requests for delivery push-outs, adds the analyst.

Henderson lowered FY23 EPS guidance from $2.47 to $2.36. The analyst lowered FY23 revenue guidance from $4.297 billion to $4.238 billion. 

For FY24, the analyst reduced EPS outlook from $3.46 to $3.00. FY24 revenue guidance is lowered from $4.652 billion to $4.481 billion.

Longer-term, strong demand, share gains, and a normalized supply chain set Ciena up for 8%-10% growth, GM expansion, and significant Operating leverage.

Henderson believes that the increase in new line systems demonstrates pent-up demand and expects subsequent transceiver Orders and Revenue will drive sustained Revenue growth while boosting GMs. 

This should be accentuated by share gains and TAM expansion as Ciena grows well above the industry average. 

Price Action: CIEN shares are trading higher by 1.06% to $41.93 on the last check Monday.