Ciena Poised For Growth On Cloud Demand, But Analysts Warn About Margin Pressure, Tariff Costs
Wall Street analysts responded to Ciena Corp.’s (NYSE:CIEN) second-quarter financial results on Thursday.
Ciena reported a quarterly revenue growth of 23.6% to $1.13 billion, beating the analyst consensus estimate of $1.09 billion.
The American telecommunications networking equipment and software services supplier reported an adjusted EPS of 42 cents, which missed the analyst consensus estimate of 52 cents.
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The adjusted gross margin declined by 250 bps to 41%, and the adjusted operating margin increased by 140 bps to 8.2%.
Rosenblatt analyst Mike Genovese maintained Ciena with a Neutral and lowered the price target from $85 to $78.
Needham analyst Ryan Koontz reiterated Ciena with a Buy and a $90 price target.
Rosenblatt: Genovese noted his Ciena preview was accurate since he expected increased revenue guidance. However, he was worried about margins because of customer and product mix and the time it could take to achieve the mid-40s gross margin and mid-teens operating margin targets.
The analyst said the gross margin was light because of a heavy sales mix of new line systems, which tend to get filled with high-margin cards later and 400ZR pluggable. The good news is that higher revenues appear sustainable.
Genovese said Cloud and Service Provider DCI markets can drive multi-year growth above 8% to 11%. The analyst noted Ciena will likely increase its multi-year revenue growth above this range before the end of fiscal 2025. He said the company has also won its first two Datacom Campus deals, including one likely to be worth hundreds of millions of dollars, with revenues slated to begin in 2026.
As per Genovese, the read for Datacom companies, like Lumentum Holdings Inc (NASDAQ:LITE) and Coherent Corp (NYSE:COHR), is positive since Cloud capex is substantial and the 1.6+T Datacom products Ciena is moving over the next few years are expected to be good for the gross margins.
The read is also positive for Telecom- and DCI-exposed names, like Viavi Solutions (NASDAQ:VIAV), Ribbon Communications (NASDAQ:RBBN) and ADTRAN Holdings (NASDAQ:ADTN), since Telecom demand is strong and Ciena’s gross margins issues are company-specific, the analyst said.
For Ciena, he sought signs that margins are sustainably improving before potentially becoming more constructive in his rating.
Genovese projected fiscal 2025 revenue of $4.58 billion (prior $4.41 billion) and adjusted EPS of $2.24 (prior $2.43).
Needham: Ciena reported mixed fiscal second-quarter results, with revenue and adjusted EPS +3% and -10 cents versus consensus, and fiscal second-half guidance reflects meaningfully higher revenue growth but lower gross margin and EPS than expected.
Fiscal second-quarter strength in Cloud (+88% Y/Y) drove the outperformance and strong bookings (B2B > 1), but new products that carry lower gross margins are increasing in mix faster than expected, the analyst said.
Increased tariff costs also impact gross profit by ~$10 million per quarter, which he feared could worsen given uncertainties.
Koontz noted the stock pullback as a buying opportunity for a company with the industry’s best technology and customer relationships. The analyst expects Ciena to benefit from continued share gains and is enthused about emerging intra-data center opportunities in fiscal 2027, although less bullish on Switching and Broadband.
Koontz projected fiscal 2025 revenue of $4.57 billion (prior $4.44 billion) and adjusted EPS of $2.25 (prior $2.58).
CIEN Price Action: CIEN stock is up 0.22% at $73.29 at publication on Friday.
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