Ciena‘s ( CIEN 3.39% ) yr went from dangerous to worse after the discharge of its fiscal 2022 first-quarter outcomes on March 7, as the corporate’s numbers weren’t as sturdy as Wall Avenue was anticipating.
Share costs of the optical networking specialist cratered 11% after the outcomes, and the inventory has now misplaced over 22% of its worth up to now this yr. Ciena blamed supply-chain disruptions brought on by the unfold of the omicron variant of the coronavirus earlier this yr, in addition to the worldwide chip scarcity, for its below-par efficiency.
Curiously, the corporate identified that the demand for its networking merchandise stays sturdy due to the expansion in community bandwidth, the sooner adoption of cloud computing, and the expansion in information site visitors.
So ought to buyers use Ciena’s drop as a possibility to purchase extra shares? Let’s discover out.
A more in-depth take a look at Ciena’s powerful quarter
Ciena reported $844.4 million in Q1 income, an 11.5% improve over the prior-year interval. Nonetheless, larger prices on account of supply-chain disruptions led to a drop within the firm’s adjusted earnings. Ciena reported $0.47 per share in earnings for the quarter, down from $0.52 per share within the prior-year interval.
It is price noting that Ciena was initially anticipating $890 million in income final quarter on the midpoint of its steering vary, however it slashed its expectations on Feb. 15, citing supply-related points. The corporate’s up to date steering known as for $840 million to $850 million in income, which suggests its precise prime line was barely behind the midpoint of the up to date vary.
The fiscal Q2 steering turned out to be one other downside. Ciena expects $930 million to $970 million in income this quarter, whereas adjusted gross margin is anticipated to land at 43%. The midpoint of the top-line steering is under consensus estimates of $961 million, however buyers ought to word that Ciena had recorded $834 million in income in the identical interval final yr. So, the corporate’s prime line is on observe to extend almost 14% yr over yr, which might be an acceleration over its Q1 progress.
The underside line, nonetheless, will take successful, as Ciena’s adjusted gross margin stood at 49.2% within the prior-year interval. This means that the corporate is anticipating a serious contraction in its margin profile resulting from elevated logistics and supply-related prices.
All of this means that Ciena is struggling on account of issues past its management. However this has opened up a possibility for savvy buyers to purchase the inventory at an affordable valuation, particularly contemplating that its fortunes may begin wanting up because the yr progresses.
The large image remains to be vivid
Ciena has maintained its full-year steering regardless of the supply-chain challenges. The corporate expects to realize 11% to 13% income progress in fiscal 2022, with an adjusted gross margin of 43% to 46%.
Ciena remains to be assured it should hit its annual goal is as a result of it expects the supply-chain situation to enhance within the second half of the yr. CEO Gary Smith identified on the corporate’s newest earnings convention name that Ciena has positioned “vital orders with our suppliers to fulfill our expectations for a powerful second half.” Moreover, Smith says that extra manufacturing capability is anticipated to return on-line later in 2022.
An enchancment within the supply-chain scenario will enable Ciena to fulfill the sturdy demand for its connectivity options, which has led to a pointy spike in orders and backlog. The corporate exited the fiscal first quarter with a book-to-bill ratio of two.5. A studying of greater than 1 means that an organization is receiving extra orders than it might probably fulfill.
This sturdy order exercise displays in Ciena’s backlog, which stood at greater than $3 billion on the finish of the earlier quarter. That backlog signifies that Ciena is nicely on its approach to hitting its full-year income goal of $4.06 billion.
What’s extra, Ciena is working in a market that appears constructed for long-term progress. Mordor Intelligence estimates that the optical transport community market could possibly be price $32 billion in income by 2027, as in comparison with $18 billion in 2021.
Consequently, Ciena ought to proceed witnessing sturdy order influx going ahead because of the rising demand for optical community elements which can be utilized in constructing sooner networks, similar to 5G. That is why buyers trying to purchase a tech inventory on a budget proper now ought to have Ciena on their watch listing, as it’s buying and selling at 19 occasions earnings, which is at a reduction to the S&P 500‘s earnings a number of of 24.
This text represents the opinion of the author, who could disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even one in every of our personal – helps us all assume critically about investing and make selections that assist us develop into smarter, happier, and richer.