Optical networking company Ciena (CIEN -1.77%) has gained 35% in stock value over the last three months, despite recent dips in revenue and earnings.
In Q3 of fiscal 2024, Ciena’s revenue fell 12% to $942 million, and adjusted net income dropped 41% to $0.35 per share. This decline is attributed to weak performance in its networking business, where optical networking revenue fell 15% and routing/switching revenue dropped 27%. The telecom equipment market has been struggling, with global spending down 17% in early 2024.
However, there are signs of recovery. Ciena ended Q3 with more orders than it shipped (a book-to-bill ratio over 1) and has reduced inventory. The company is forecasting a revenue of $1.1 billion for the current quarter, signaling potential growth.
Positive Outlook for Ciena
Analysts believe the increasing adoption of AI will benefit Ciena. Morgan Stanley and Jefferies recently raised their price targets for Ciena, with Jefferies now predicting a target of $80, due to expected demand for faster connectivity between data centers driven by AI.
As Ciena continues to secure contracts with major cloud providers, it’s expected that spending on connecting data centers could double in the coming years, supporting Ciena’s growth.
With projected earnings growth, Ciena’s stock could reach $85 in a few years based on expected earnings of $3.39 per share and a valuation of 25 times earnings. Investors looking for an AI winner might consider Ciena as it trades at a competitive valuation.
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