CIENA Shares Fall After JPMorgan Cuts Price Target

CIENA (NYSE:CIEN) shares fell more than 2% pre-market today after JPMorgan analysts reduced the price target for the company to $60 from $67, while maintaining an Overweight rating.

The analysts adjusted the forecasts for Ciena ahead of the earnings report in the first week of June. Recent discussions with optical equipment vendors at the 52nd Annual TMC Conference revealed a weak recovery in Telecom service provider orders and demand, delaying expectations of a recovery to late 2024 or early 2025. Despite Ciena already lowering its revenue expectations for this year, reaching the mid-point of the full-year revenue guidance of a 5% decline will require a sequential revenue increase from the second quarter's trough levels.

However, with the industry consensus indicating a slower recovery in the Telecom sector, the analysts are more cautious about this ramp-up.

The revised forecast now anticipates an 8% year-over-year revenue decline, with full-year revenue likely to hit the lower end of the $4.0-$4.3 billion guidance. Nevertheless, the second quarter is expected to be the lowest point in terms of revenue, with subsequent quarters showing improvement driven by increasing Cloud orders. This is supported by better Cloud order reports from Juniper and Infinera. The growing momentum of Cloud orders and the eventual cyclical recovery in Telecom are expected to return Ciena to its long-term revenue growth by fiscal 2025, especially considering the expanded Total Addressable Market (TAM) related to Switching & Routing and Access parts of the network.

As the company moves past the trough quarter, the EPS leverage on revenue recovery becomes significant. Ciena is expected to exit fiscal 2024 with a high earnings run-rate and expand earnings by over 20% in both 2025 and 2026.