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Ciena (CIEN) to Report Q1 Earnings: A Beat in the Offing?

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Ciena Corporation (CIEN - Free Report) is scheduled to report first-quarter fiscal 2019 financial results (ended Feb 2, 2019) before the opening bell on Mar 5. In the last reported quarter, the company delivered a positive earnings surprise of 8.2%. Notably, it surpassed the Zacks Consensus Estimate in three of the last four quarters, the average beat being 11.7%.

The company is expected to register year-over-year higher revenues, driven by diligent execution of operational strategies, including long-term investments made over the years to address customer needs in high-growth markets and applications. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors at Play

Ciena is confident about its business model and ability to achieve its three-year financial targets on the back of diversification, global scale and innovation leadership. The company has been working to enhance its Packet Networking portfolio with new Adaptive IP capabilities, coherent optics and purpose-built hardware platforms to enable service providers to capitalize on 5G technology.

Ciena’s Blue Planet business started operating as its own division entering fiscal 2019. This is likely to augment its capacity to support consumption models by allowing software business to operate independently of hardware.

During the fiscal first quarter, Ciena’s WaveLogic Ai tunable coherent optics and the 6500 T-series were deployed by Southern Cross Cables to address the burgeoning demand for connectivity led by cloud, HD video and Internet of Things. The company also augmented its channel partner program to better align with the rapidly changing IT landscape. It introduced the new Ciena Partner Network to accelerate customers’ transition to more adaptive networks.

Furthermore, the company announced that Gigaclear Networks — a leading provider of full fiber broadband connectivity to rural communities in the U. K. — has deployed a 100G transport network across many locations, which is powered by Ciena’s optical and intelligent software solutions. For fiscal first quarter, management expects revenues to be between $745 million and $775 million. While adjusted gross margin is expected in the range of 42-43%, adjusted operating expenses are projected to be around $255 million.

Top-Line Expansion

Ciena is poised to benefit from strong fundamental demand drivers, particularly at a time when cloud providers are increasingly investing in their network infrastructure assets to drive business. In addition, the company boasts a solid position with more than 40% market share in the global webscale Data Center Interconnect market. For the fiscal first quarter, the Zacks Consensus Estimate for total revenues stands at $755 million. The company generated revenues of $646 million in the prior-year quarter. Adjusted earnings per share are pegged at 30 cents, up from 15 cents reported a year ago.

What Our Model Says

Our proven model shows that Ciena is likely to beat earnings this quarter as it possesses both the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Ciena’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.   

Zacks Rank: Ciena currently has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

PlayAGS, Inc. (AGS - Free Report) has an Earnings ESP of +42.86% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Heritage-Crystal Clean, Inc (HCCI - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #1.

Axonics Modulation Technologies, Inc. (AXNX - Free Report) has an Earnings ESP of +25.93% and a Zacks Rank #2.

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