Categories Analysis, Earnings, Technology

Earnings Preview: Ciena to cash in on global growth, diversification in Q2

After starting the year on an upbeat note, network technology provider Ciena Corp. (NYSE: CIEN) is set to publish its second-quarter earnings report Thursday before the opening bell. The market is pretty bullish about the company’s performance this year and predicts a 12% growth in net sales to $819 million for the quarter. During the three-month period, profit is estimated to have surged 78% to $0.41 per share.

The management’s ambitious diversification program continues to yield results, with the broadening customer base and global expansion adding to revenue growth. The initiative is part of the efforts to reduce reliance on the legacy telecom companies and focus on emerging segments like network operation, web-scale and data center business.

Influencing Factors

Innovation, such as the path-breaking packet networking technology, gives the company an advantage over its peers. The other positive factors include the recent launch of WaveLogic technology, aimed at reinforcing the company’s dominance in coherent optics, and the tie-up with BT Group for securing higher network speeds to complement the mobile data growth and increasing demand for domestic broadband service.

Innovation, such as the path-breaking packet networking technology, gives the company an advantage over its peers

Being linked to the communication industry that is constantly evolving, the demand for network hardware and software is set to grow in the foreseeable future, which bodes well for providers like Ciena. Also, the increasing investments in network infrastructure, mainly by cloud technology companies, could act as a catalyst.

Ciena recently entered into an agreement with India-based telecom firm Bharti Airtel, offering solutions for the deployment of the latter’s coherent optical and intelligent software platforms for high-speed wireless services including 5G.

Past Performance

The average rate of Ciena’s earnings growth in the past five years is 54%, which exceeds the industry average by a wide margin. The company’s return on equity has witnessed an improvement of a similar scale, also outpacing the market.

Benefitting from broad-based demand growth across all segments and regions, Ciena’s first-quarter revenues climbed 21% annually to $779 million. Adjusted earnings more than doubled to $0.33 per share, triggering a stock rally in early March.

Network technology giant Cisco (CSCO) last month reported higher earnings and revenues for the third quarter, supported by a strong performance by its infrastructure platform, and issued positive guidance for the full year.

Shares of Ciena are currently trading around $35, broadly at the levels seen at the beginning of 2019. The stock, which hit a multi-year high earlier this year, climbed 43% in the past twelve months.

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