Ciena is doing well and is only going to get better – Jefferies

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Off the back of its quarterly results, investment bank Jefferies is confident business at Ciena is only going to get better.

With the last three months looking very positive for the business, Jefferies has warned investors not to get too jumpy and hold onto shares in the business. With the team reporting a 12% year-on-year rise in revenues to $818.8 million, share price also jumped 12%. Some might be tempted to cash in on the bonanza, but they might be missing out.

“The July quarter results reinforced our view that Ciena’s perceived margin issues are normal and temporary in nature,” said George Notter, MD of the telecoms research group at Jefferies. “Moreover, they’re the long-term market share consolidator in the space. We still think the shares are still too cheap given potential upside to the model, faster EPS growth, and improving consistency here. We reiterate our Buy rating.”

There are of course risks to the Ciena business model. Three customers account for more than 33% of total revenues, a slightly uncomfortable concentration, though Jefferies believes the struggles of Ciena’s rivals only compounds its leadership position in the segment. On-going security concerns for Huawei and ZTE will not make these attractive vendors for the sizeable investment made by telcos, while Infinera has missed recent product cycles resulting in lost market share, and Nokia is seemingly innovating its own portfolio but at a slower pace than Ciena.

Ciena has the best technology, a reliable and secure supply of product, and the resources to support very large network buildouts, making it an attractive proposition for potential customers. In comparison to competitors, Ciena is also spending more on R&D allowing the firm to meet the aggressive product recycle demands of customers. This is demonstrative in Ciena is the only vendor currently shipping a 400G/wavelength coherent product, Wavelogic Ai, and while technology leadership can change quickly, it is believed Ciena will announce a successor product over the next couple of months to consolidate this position.

According to Jefferies, while there has been a surge in share price, it is still cheap and should move upwards. If you’re a Ciena investor, the advice here is don’t get twitchy with the sell button, greater gains are on the horizon.

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