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Billionaire Ken Griffin’s Citadel Takes 5.1% Stake In Ciena

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A 13G filed with the SEC has disclosed that Citadel Investment Group, a large hedge fund managed by billionaire Ken Griffin, owns 5.2 million shares of Ciena Corporation (NASDAQ:CIEN), a $1.7 billion market cap communications equipment and software company. This comes out to 5.1% of the total shares outstanding. We track quarterly 13F filings from hedge funds such as Citadel as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an excess return of 18 percentage points per year), and so we can see that the fund had only about 1 million shares in its portfolio at the end of December 2012. So the overwhelming majority of Citadel’s position has been purchased in the last two and a half months (see more of Griffin’s stock picks from the 13F).

The largest holder of Ciena Corporation shares in our database belonged to Platinum Asset Management. Platinum, which is managed by billionaire Kerr Neilson, cut its stake by 7% during the fourth quarter of 2012 but still owned 6.7 million shares of the stock (find Neilson’s favorite stocks). Billionaire George Soros reported a large position in Ciena’s debt, while Mariko Gordon’s Daruma Asset Management disclosed ownership of 2.2 million shares (though this was down considerably from the end of September). Research more stocks Daruma owned.

CITADEL INVESTMENT GROUPThe first quarter of Ciena’s fiscal year ended in January, with the company experiencing an increase in revenues in both products and services (9% growth overall) versus a year earlier. While GAAP numbers showed both operating and net losses, much of this was due to a loss on debt extinguishment and share-based compensation. In non-GAAP terms the company’s earnings per share were 12 cents, well up from the same period in the previous fiscal year and easily beating analyst expectations. The stock rose 17% on the news.

Results from the 10-Q was particularly good news as Ciena Corporation had been struggling with profitability in recent quarters and had previously guided numbers down for the current year. Current analyst expectations for the fiscal year ending in October 2014 imply a forward P/E of 19. This suggests that Ciena will have to continue beating expectations or be in a strong growth position at that time. We think it’s notable that the most recent data- from the end of February, before quarterly results were released- show 31% of the outstanding shares held short. Short covering may have helped fuel the rally in the stock price. We would also pay attention to the fairly high beta of 2.3.

How does the company compare with its peers?

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