Analysts Highlight Supply Chain Constraints Hurting Ciena's Q3 Results; See Recovery In FY23

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  • Ciena Corp CIEN reported a third-quarter FY22 revenue decline of 12.2% year-on-year to $868 million, missing the consensus.
  • The non-GAAP EPS of $0.33 was in-line with the consensus.
  • Needham analyst Alex Henderson reiterated a Buy and cut the price target from $88 to $70.
  • The supply chain, not demand, hurt Ciena's print and Q4 guide.
  • Ciena stated that a small set of low-priced ICs used in their high-margin transceivers had supply issues late in the quarter. 
  • Ciena's backlog increased to $4.4 billion, equal to 135% of his FY23 Product Sales forecast. Ciena expects to continue to build backlog in Q4. The impact of the inability to ship is pronounced. 
  • Ciena increased staffing by 11% resulting in a sharp contraction in near-term EPS. 
  • It's challenging to craft the shape and timing, but Ciena should see a strong rebound once the supply improves.
  • Morgan Stanley analyst Meta Marshall reiterated an Overweight and price target of $60.
  • Marshall highlights that while demand conditions remain robust and the backlog continues to grow, supply chain challenges continue to increase for CIEN, causing a significant shortfall to revenue expectations for the remainder of the year, just as others are starting to see the supply chain loosen.
  • She notes that CIEN reported Q3 below her expectations.
  • She adds that the primary constraints are around decommits of low-value ICs from a small number of suppliers. 
  • The analyst's immediate changes to estimates moving forward incorporate her view that the supply chain does not materially recover in Q4. 
  • She thinks the solid cloud and service provider capex through year-end set CIEN up well over the next couple of quarters, balanced by her expectations for the supply chain to limit upside in the near term. 
  • Rosenblatt analyst Mike Genovese reiterated a Buy and price target of $65.
  • Ciena missed Q3 revenues and gross margins and guided Q4 significantly below expectations due to the shortage of a few critical low-cost analog semis stopping it from shipping finished goods. 
  • While the Q4 guide down on the supply chain was not unexpected, the magnitude was surprising. 
  • However, he sees this as the trough of known industry issues, not something new. 
  • FY23 should be a year of solid growth and margin expansion. 
  • Raymond James analyst Simon Leopold reiterated Outperform but cut his price target to $55 from $64 following Ciena's Q3 report. 
  • Shortages of a handful of crucial ICs, i.e., the golden screw, led to a sales miss and a much lower outlook. 
  • The results reflect poor execution in a difficult situation, but Ciena's robust portfolio, customer relationships, and ~$4.4 billion backlog encouraged him to look past the supply chain issues. 
  • The recovery will take time, but he sees Ciena as a share gainer with expanding margins.
  • Price Action: CIEN shares traded lower by 1.72% at $44.70 on the last check Friday.
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