Summary
A strong third quarter with revenue and gross margin both above expectation is just what Ciena needed, and there appears to be solid momentum in both Tier 1/telco and data center.
Between 5G deployments, webscale growth, and overall traffic volume growth, the demand outlook for Ciena is healthy, and the company has the opportunity to make some noise in data centers.
Ciena has had a good run and now sits in the middle of my fair value range.
Ciena (CIEN) has been a patience-testing call at times, as the market has been unwilling to trust this optical equipment provider given a not-so-great history and reputation for its sector. While there are still too many subscale players in optical transport, Ciena is doing well on Tier 1 metro spending, growth overseas in markets like India and Japan, and data center growth. Margins are still a bit of a sensitive subject, but I think management has made a good case for why margins should rebound over time.
With the big post-earnings jump (up more than 10%), it's harder to call Ciena a bargain, though I don't think the upside is tapped out yet. I'm a little concerned that Ciena could disappoint on gross margins in the next quarter and shake some of this newly-won confidence, but this is definitely a name I'd look at again if it were to slide back into the mid-$20s.
