Ciena (CIEN) is a Buy During Pandemic Times

Optical network solutions provider Ciena (NASDAQ: CIEN)  has been one of the most resilient stocks throughout the coronavirus pandemic as shares continue to trade within (-7%) off highs compared to the(- 23%) for the S&P 500 (NYSEARCA: SPY). The surge in remote and telework activity along with video streaming has bolstered the need for bandwidth capacity, which is right up Cena’s alley. Shares have outperformed peer networking giants Cisco Systems (NASDAQ: CSCO) , F5 Networks (NASDAQ: FFIV) and Juniper Networks (NASDAQ: JNPR) . While showing solid relative strength, prudent investors will want to monitor the reversions to stalk opportunity entry levels as Ciena moves up the hierarchy as COVID-19 passes.  

Ciena Q1 2020 Results and COVID-19 Impact 

Ciena reported Q1 2020 results for the quarter ending Jan. 31, 2020, on March 5, 2020. They reported EPS of $0.52-per share beating consensus analyst estimates by + 0.14 on revenues of $832.9 million, up 7% year-over-year (YoY). The company noted having the industry’s smaller exposure in China helped mitigate coronavirus effects in that region. They gained two 10% customers, Verizon (NYSE: VZ) and AT&T (NYSE: T) in the quarter. However, they did take proactive measures to buffer for the spread of COVID-19 affecting their supply chain. FY 2020 remains unchanged and believes they are better positive than competitors. Ciena noted the estimated adverse effects of COVID-19 to impact Q2 2020 revenues by $30 million, updating forecast range to $875 to $905 million. While shares took a hit to lows at $30.58 on March 16^th, they quickly rebounded to firmly base above the $39.72 weekly market structure low (MSL)trigger by April 1^st and haven’t looked back.

Minimal International Covid-19 Exposure

Ciena end Q1 2020 with $960 million in cash or $6.17-per share and generating $23.36 revenues per share. Ciena continues to expect 42% to 44% gross margins and improving with large software orders which naturally have higher margins. Bandwidth expansion is usually a software upgrade. The company ended Q2 2020 with $340 million in inventory. Ciena doesn’t do contract manufacturing in China, however, some of their suppliers do source parts from China and barely any business in Italy. Japan is a strong growth region.

Telework, Remote Meetings and Streaming Demands

The social distancing initiatives during the coronavirus pandemic are a blessing for Ciena as a demand for bandwidth capacity spikes. Their WaveLogic 5 product saw 400 gigs transmitted over 4,000 kilometers (KM). The $30 million revenue forecast cut is not due to the demand contraction but a proactive forecast factoring potential effects on supply chain and logistics problems (IE: installations potentially put on hold in COVID-19 regions). Getting on the sites is the logistics issue. However, infrastructure projects may be considered “essential” services in many regions with stay in shelter mandates. CIEN will thrive in this environment due to the bandwidth demand and likely grow backlog during periods of disruption.

Opportunistic Buy Levels

Using the rifle charts on wider time frames to lay out the playing field is suitable for swing traders and investors. CIEN is a rare stock that actually has a monthly stochastic crossing up due to the rapid spring-like coil off the lows up through the monthly 5-period moving average (MA) at $41.52 overlapping near the $41.26 Fibonacci (fib) level. This also caused the weekly stochastic to cross back up despite the 5 and 15-period MAs technically in a stalled down trend. A pullback to the weekly 5-period MA near the $39.72 market structure low (MSL) trigger is an ideal spot to wait. The daily stochastic is smothered near the 100-band oversold level with upper BBs at $45.08. It’s too late to chase this one but rather wait for the pullbacks at the key support levels for opportunistic entries. There are four levels to watch on pullbacks with the higher priced levels suitable for traders and the lower priced level best suited for swing traders and longer-term holders. This is because the initial level is a pullback support where traders will be looking to scalp limited upside near the upper daily BBs. The opportunistic entry levels on pullbacks are $41.26 fib/monthly 5-period MA, $39.72 MSL, $37.82 fib and $35.44 sticky 5s zone/1.618 fib. Nimble traders can scalp these levels and long-term investors may consider a dollar-cost averaging approach with income generation through writing covered calls.