Where to Buy Ciena Corporation as Chart Starts to Look Parabolic
Here is my proposed plan on the networking system, software and hardware name.
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On Thursday morning, Ciena Corporation (CIEN) released the firm's fiscal fourth quarter financial results. For the period ended November 1, Ciena posted an adjusted EPS of $0.91 (GAAP EPS: $0.13) on revenue of $1.352 billion. These top- and adjusted bottom-line results both beat Wall Street's expectations while that sales print was good enough for year-over-year growth of 20.5%. For those who do not know, Ciena Corporation is a networking system, software, hardware and services company.
Segment Sales Performance
- Networking Platforms generated revenue of $1.048 billion (+22%)
- Optical Networking generated revenue of $929.2 million (+19.2%)
- Routing and Switching generated revenue of $118.4 million (+49%)
- Global Services generated revenue of $177.3 million (+24.9%)
- Maintenance generated revenue of $82.5 million (+6.9%)
- Implementation generated revenue of $74.3 million (+44.6%)
- Advisory generated revenue of $20.5 million (+53%)
- Platform Software and Services generated revenue of $93.3 million (-6.3%)
- Blue Planet Automation Software and Services generated revenue of $33.8 million (+43.8%)
Operations
As revenue jumped 20.5% to $1.352 billion, the cost of that revenue increased 16.7% to $774.805 million. That left a gross profit of $577.179 million on a gross margin of 42.7%, up from 40.9%. Total GAAP operating expenses grew 41.4% to $566.688 million as GAAP operating margin dropped from 5.3% to 0.8%. On an adjusted basis, operating expenses increased just 15.2% to $408.7 million as adjusted operating margin improved from 10% to 13.2%.
After accounting for interest, other income and expenses and taxes, GAAP net income printed at $19.489 million (-47.4%). This worked out to $0.13 per fully diluted share, down from the year ago comp of $0.25. Adjusted, net income landed at $132.917 million (+67.7%). That worked out to $0.91 per fully diluted share, up from the year ago comp of $0.54. The lion's share of the adjustments made were made for the purpose of asset impairment and restructuring costs.
Guidance
For the current quarter, Ciena sees revenue of $1.35 billion to $1.43 billion, with Wall Street looking for $1.25 billion. Ciena also sees an adjusted gross margin of 43% to 44% and an adjusted operating margin of 15.5% to 16.5%.
For the full year coming, the firm projects revenue of $5.7 billion to $6.1 billion with expectations down around $5.53 billion. The firm also projects an adjusted gross margin of 42% to 44% and an adjusted operating margin of 16% to 18%. This sales guidance had a bit to do with the firm's higher opening on Thursday morning.
Fundamentals
For the full year just completed, Ciena generated operating cash flow of $806.093 million. Out of that came capex spending of $140.801 million, which left free cash flow of $665.292 million (+76%). Out of that number, the firm repurchased $334.507 million in common stock for the firm's treasury. Ciena does not pay a cash dividend to shareholders.
Looking over the balance sheet, Ciena ended the period with a cash position of $1.308 billion and inventories of $826.235 million. That brought current assets to $3.566 billion. Current liabilities add up to $1.308 billion. This includes only a very small level of shorter-term debt, but deferred revenue of $208.936 million. At the headline level, the firm's current ratio stands at a very healthy 2.72. Adjusted for deferred revenue, that ratio rises to a very muscular 3.24.
Total assets amount to $5.865 billion, of which goodwill and other intangibles total less than 13%. That's no problem at all. Total liabilities less equity comes to $3.135 billion. That does include $1.524 billion worth of long-term debt. Not quite covered by cash, but certainly not a bad balance sheet overall.
My Thoughts
Ciena is hot. The stock has gone somewhat parabolic since the summer. The balance sheet is strong. Cash flows are improving dramatically. sales are growing nicely. The impairment charges and restructuring costs look to largely be out of the way. I don't like to buy stocks at the top of the chart after a run like this:
Readers will see that, when overlaying an Andrews' pitchfork model over the late 2025 run, that the stock has repeatedly hit resistance at the upper trendline while finding support at its 50-day SMA. Relative strength has now entered into technically overbought territory and the daily MACD is postured quite bullishly as well.
My thoughts? I'd like to get long these shares in the lower chamber of the Pitchfork, as close to the 21-day EMA as possible. Personally, I'd rather collect the $17 premium or so to write a March $200 put and get paid to see if the shares ever come in than to chase an equity that's already up 178% since August.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
