For once the theory does appear to be correct!
Indeed, Ciena Corporation (NASDAQ:CIEN) now does 60% of its optical transport revenues from 40 and 100G. This is a good sign that carriers are jumping to higher speed Ethernet networking. In fact, Ciena talked of good demand for 100G technologies. With North America it is a story of its design wins starting to be deployed in line with some of the capital spending plans outlined above and Ciena Corporation (NASDAQ:CIEN)’s management spoke in optimistic tones about the upcoming year. Moreover, its switching revenues tend to be higher margin than transport so gross margins are expected to expand this year as the former becomes a larger part of the sales mix.
As for the order book, I think investors have cause for optimism. Ciena’s order book was back end loaded in Q1 (traditionally a weaker quarter for orders) which suggests that Q2 orders are in good shape. Indeed, its Q4 orders were at record levels and the positive tone around the results suggests that Ciena is set for a good year.
Where Next For Ciena Corporation (NASDAQ:CIEN)?
Ciena certainly isn’t a value stock but then I think we all know what happens with this sort of stock. The market seems to have a consistent tendency to buy growth stocks as long as the sector commentary is positive but then violently lose patience at the slightest sign of weakness. On a forward PE of 21x for 2014 the stock is hardly cheap and buying it requires a positive view of the macro outlook. On the other hand Ciena is exposed to the growth areas of telco spending.
On balance I think there are cheaper ways to play rising telco spending but if you want an aggressive play than Ciena Corporation (NASDAQ:CIEN) is well worth a look.
The article Why This Telco Is Well Placed for 2013 originally appeared on Fool.com and is written by Lee Samaha.
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