Networking technology maker Ciena (NYSE:) released its earnings report on Thursday.
With that earnings report came a 2.87% bump in share price, thanks to the sheer quality of the numbers posted.
It wasn’t just earnings that gave Ciena its boost, however. Between the numbers the company turned in, the demand that fueled them, and the plans for future advancement, I’m bullish on Ciena stock.
Ciena stock has reliably maintained a path in the $50 to $60 range for most of 2021. The company once managed to breach $60, closing above that point from June 3-10 before slipping back under $60. (See Ciena stock charts on TipRanks)
Ciena’s earnings report, meanwhile, turned in wins all around. The company posted $0.92 in earnings against a consensus expectation calling for $0.79 per share. The company’s revenue also beat consensus figures, bringing in $988.1 million against consensus figures calling for $971.6 million. That $988.1 million also represents a 1.2% increase over this time last year.
A look at the earnings breakdown offers noteworthy commentary as well. While the company’s Total Networking Platforms figures declined against last year, Total Global Services saw a substantial rise. The networking arm dropped 2.5% against this time last year, dropping to $782.6 million, while global services surged 13.1% to reach $132 million. The company specifically cited “robust demand” as one of the reasons for its gains in the earnings report.
The company also made a recent move that would advance its capabilities in the field. Ciena recent agreed to buy Vyatta from AT&T (NYSE:). Vyatta is a virtual routing and switching system that Ciena will support in AT&T’s wireless network. This lets it come in contact with several 5G use cases, a set of virtual network functions, and even some enterprise business services as well. Acquiring Vyatta lets Ciena improve its operations in edge computing.
Wall Street’s Take
Wall Street consensus analysis calls Ciena a “Strong Buy.” The company has had 10 analysts offer 12-month price targets in the last three months, and eight of these consider Ciena a “Buy”. Two, meanwhile, consider it a “Hold”. Ciena has maintained that “Strong Buy” ranking since April, when it shifted from a “Moderate Buy”. Previously, Ciena had been a “Moderate Buy” since November 2020.
Price targets for Ciena are in a fairly narrow range. The average analyst Ciena price target currently sits at $65.40, with a high of $71 and a low of $51. With Ciena currently priced around $56.92, that represents an upside potential of around 14.9%.
Driving Toward the Future of Edge Computing
Edge computing looks to better connect data sources to data storage and processing by bringing the three closer together. Such a move improves processing, speeding up processes and freeing up bandwidth. As businesses put more demands on the network, more power to meet those demands will be welcome. That alone puts Ciena in a good position going forward.
Throw in the fact that Ciena is also taking further steps into 5G operations, as represented by the Vyatta acquisitions, and the end result is another significant plus for Ciena. If Ciena were just a networking equipment maker, that would be reason enough to take an interest in it. If 2020 taught us anything, it’s that the internet is a lot more vital to operations than we ever thought. Whether it was employees working remotely or customers shopping remotely, being there and handling the traffic helped businesses survive disaster.
By offering advances in the platforms that help businesses survive disaster, meanwhile, Ciena makes itself that much more attractive an investment. It’s easy to see why so many analysts consider Ciena a Strong Buy. The company both understands its strengths and its weaknesses. We saw in the earnings report that networking platform figures are declining, but services figures are shooting up.
Equipment makers commonly have seen sales of hardware start to slump. Improving hardware quality means less frequent replacement. Plus, the increases of cloud-based systems are starting to drag on equipment sales. One of the biggest draws of a cloud-based system is that someone else has the equipment, which means someone else pays to maintain that equipment. Ciena has seen this trend coming and is working accordingly. That level of foresight helps make Ciena that much more attractive, and keeps me bullish on this equipment maker.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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