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Ciena (CIEN) Down 5.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Ciena (CIEN). Shares have lost about 5.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ciena 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 catalysts.

Ciena Q1 Earnings Beat Estimates, Revenues Rise Y/Y

Ciena reported healthy first-quarter fiscal 2020 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. Higher segmental revenues on the back of varied customer base, technology advancements and market share gains drove Ciena’s performance.

Net Income

On a GAAP basis, net income in the quarter was $62.3 million or 40 cents per share compared with $33.6 million or 21 cents per share in the year-ago quarter. The year-over-year improvement was primarily driven by top-line growth.

Quarterly adjusted net income came in at $81.7 million or 52 cents per share compared with $52.8 million or 33 cents per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 14 cents.

Revenues

Quarterly total revenues increased 7% year over year to $832.9 million on the back of higher segmental revenues and product sales. Ciena had two 10%-plus customers in the quarter, which represented 24% of revenues. The top line surpassed the consensus estimate of $822 million.

Region wise, revenues from the Americas were $574 million, up 11.2% year over year, driven by robust service provider business in North America, which includes new wins of two 10% customers — Verizon and AT&T. Increased revenues from multiple system operators also leveraged the performance. Revenues from Europe, Middle East and Africa were $130 million, up 0.6% from $129.2 million in the year-ago quarter, driven by increased market share. Asia Pacific revenues totaled $128.9 million, down 3%, mainly due to the impact of COVID-19 in China.

Quarterly Segment Results

Revenues from Networking Platforms increased 6.2% year over year to $659 million, driven by new product launches. Platform Software and Services revenues were $51.9 million compared with $41.6 million in the prior-year quarter. Blue Planet Automation Software and Services revenues grew from $15 million to $15.5 million, primarily backed by two major wins from non-U.S. Tier 1 service providers. Revenues from Global Services were $106.5 million compared with $101.4 million a year ago.

Other Details

Adjusted gross margin was 45.1% compared with 42.2% in the year-ago quarter. Adjusted operating expenses were $266.4 million, up from $253.6 million. Adjusted operating income increased to $109.4 million from $74.6 million. Adjusted operating margin was 13.1% compared with 9.6% in the prior-year quarter. Adjusted EBITDA was $135.3 million, up from $96.2 million.

Cash Flow & Liquidity

In the first three months of fiscal 2020, Ciena generated $39.8 million of net cash from operating activities against $14.1 million of net cash utilization in the prior-year quarter. As of Jan 31, 2020, the company had $837.3 million in cash and equivalents with $680.8 million of net long-term debt. During the reported quarter, Ciena repurchased nearly 1.3 million shares for an aggregate price of $50.7 million.

Guidance

Ciena has provided outlook for second-quarter fiscal 2020 and full-year 2020. For the fiscal second quarter, revenues are expected to be in the range of $875-$905 million, which includes a reduction of nearly $30 million due to the projected impact of coronavirus. Adjusted gross margin is likely to be in the range of 42-44% with adjusted operating expense to be approximately $275 million.

For full-year 2020, revenues are anticipated to grow annually at a rate of 6-8%. Adjusted gross margin is likely to be in the band of 42-44%. Adjusted operating margin is estimated to be 15% with adjusted operating expense of $270-$275 million per quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -13.35% due to these changes.

VGM Scores

Currently, Ciena has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ciena has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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