- Ciena (CIEN) gave bulls more room to run as executives offered an optimistic fiscal fourth-quarter outlook, based on strong sales trends.
- CEO Gary Smith said he had "confidence" in the revenue numbers for the quarter ending Oct. 31. And though the company didn't provide an update to its sales and profit targets, Ciena raised its fiscal fourth-quarter gross margin guidance to a range of 47% to 49% from the previous mid-40% range.
- Smith went on to say that the company's specialist role as an independent equipment supplier to phone companies has provided some shelter from price cuts by larger rivals like Alcatel Lucent (ALU) and Nortel (NT).
- Ciena executives also relieved some concerns, saying they saw no impact from AT&T's (T) spending cuts that have hit the top line at other gear peers. When asked how AT&T orders were coming in, Smith said he'd seen "no interruptions."
- Last year, Ciena projected annual sales growth of around 24%, and went on to blow past that rate with a 37% year-over-year increase. The surge has helped win fans to the Ciena investment story.
- One analyst at the show said he saw the stock going to $45 this year as the price catches up to Ciena's performance. Others were even more optimistic, though with some cautions. "I think it goes to $45 or $50," said one money manager at the conference. "It worries me, though, people are told they have to be in tech and they are selling their Coca Cola (KO) to get in."
Takeaway: I mentioned mid $40s as a good target in the near(er) term for Ciena and the stock is up stronger than I anticipated, currently at $42.50 up 8.50% on the day after 2 strong days leading up to this. So it is only about 5% away from my target for end of the year. Many institutions were shorting this guy due to their convertible debt and I believe their short covering is helping to spur part of this rally.
Probably due for some pullback but I am going to hold all my shares until we get nearer to $50 hopefully by Q1 or Q2 2008. That's still 20% more upside from here, and Ciena has lagged the entire market in this huge run off the August lows. The main concerns were the spending with AT&T since Ciena's revenue is so concentrated with such a few customers (hence a slowdown in one could really hurt a quarter). That seems to be allayed, and I also like to see gross margins matching last quarters high 40s (although they guided to mid 40s). This is the classic under promise, over deliver. And finally the stock is delivering; unfortunately at the potential tail end of a large rally so it might face some headwinds if the market pulls back (does the market ever really pull back any more? Only when the Central Bank says its allowed to I guess). Ok enough about Ciena, I need to find a story about Apple (AAPL) to post.... it's been at least 3 days since I last had one hah.
I did buy a bit more Ciena (CIEN) this AM on the breakout; the next one I am looking for a breakout from in the upcoming month is Blue Coat Systems (BCSI) - still seeing this hitting $100 by end of year. Ciena is now up to 6.3% of the fund - any serious pullback to near $40 I will now be adding as the chart has finally improved and is now back in bullish mode.
Long Ciena, Blue Coat Systems in fund; long Blue Coat Systems in personal account
