Ciena Stock Giving Window of Opportunity

Adaptive network solutions provider Ciena Corporation NYSE: CIEN stock has lost (-43%) in the 2022 bear market falling for 11 straight weeks. The optical fiber maker is instrumental in the deployment of 5G infrastructure and growth in wireless and accelerated cloud adoption at the edge of the network. The Company lowered its fiscal full-year 2022 revenue growth percentage to mid-single digits from its 11% to 13% previous outlook. The shortfall comes from the industry-wide supply chain constraints against robust product demand causing growing backlog. Ciena’s book-to-bill ratio grew well over 1.5X from $2.2 billion at the end of 2021 to over $4 billion by the end of Q2 2022. Many of the low-value commoditized parts essential to product of IC and SMIC are primary sourced out of China, which was impacted by the COVID lockdowns. The significant demand for Ciena products is further adding to the supply chain challenges as they get worse. Demands continue to outstrip supply. The recovery in the availability of supply is the most impactful element of performance and revenue growth. Prudent investors seeking exposure in broadband network infrastructure solutions can watch for opportunistic pullbacks in shares of Ciena.   

Q2 Fiscal 2022 Earnings Release

On June 2, 2022, Ciena reported its fiscal Q2 2022 results for the quarter ending April 2022. The Company reported earnings-per-share (EPS) of $0.50 missing consensus analyst estimates for $0.54 by (-$0.04). Revenues grew 13.8% year-over-year (YoY) to $949.2 million, missing analyst estimates for $950.86 million. Ciena CEO Gary Smith commented, “Our strong execution in the fiscal second quarter enabled us to deliver 14% year-over-year revenue growth despite an increasingly challenging supply environment. We also saw continued strength in order flow and backlog growth in the quarter, reflecting the durability of longer-term secular demand drivers. At a time when industry-wide supply chain constraints are resulting in increased uncertainty and a wider range of potential outcomes in the coming quarters, our near-term financial performance is entirely a function of component availability – not the strong underlying demand in our business.”

Lowered Guidance

Ciena expects fiscal Q3 2022 revenues between $870 million to $930 million versus $1.08 billion consensus analyst estimates. The Company lowered its fiscal full-year 2022 revenues to the mid-single digit growth from previous outlook of 11% to 13% growth.

Conference Call Takeaways

CEO Gary Smith noted the good performance against a backdrop of supply chain challenges. The book-to-bill ratio grew well in excess of 1.5X as backlog continues to grow. Secular positive demand trends are very durable over the long-term and CEO Smith is confident they will capture market share. The significant growth and demand for its technology has further exacerbated the ongoing global supply chain challenges. The Company has implemented supply chain mitigation strategies as evidenced by delivering more products in fiscal Q2 2022 than the same period a year ago. Non-telco sales grew 44% YoY, which includes direct web-scale revenues of 22%, up 7% YoY mostly due to its Waverserver platform. The Company now has six of the top global web-scale companies using WaveLogic 5 Extreme. The Company added 16 new WaveLogic 5E customers for a total of 172. WaveLogic SE shipments grew 50% YoY to over 35,000 globally. Routing and switching business continues to be driven by Tier 1 service providers and Tier 2 and 3 customers. He concluded, “Looking at the overall demand environment, the shifts in business and consumer behavior have accelerated positive trends for our business, including cloud adoption, a greater focus on the network edge, which is really greater capacity closer to the customer, and the need of course for increased automation. These are strong and durable long-term secular drivers for the industry, creating an incredible demand environment for our business going forward.”

CIEN Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for CIEN stock. The weekly rifle chart formed a shooting star peak just below the $78.80 Fibonacci (fib) level. The weekly rifle chart downtrend has a falling 5-period moving average (MA) at 47.94 nearly overlapping with the weekly 200-period MA at $47.55. The weekly 15-period MA continues to fall at $53.90. The weekly lower Bollinger Bands (BBs) sit at $38.46. The weekly market structure low (MSL) buy triggered on the breakout through $40.47. The daily rifle chart has a downtrend with a flattening 5-period MA at $43.25 with a falling 15-period MA at $47.24 with daily lower BBs at $39.78. The daily stochastic is attempting to cross up through the 10-band. The daily upper BBs sit at $55.99 and daily 200-period MA sit at $59.62. Prudent investors can look for opportunistic pullback levels at the $40.77 fib, $37.13 fib, $35.80 fib, $33.15 fib, $30.87 fib, $29.58 fib, and the $27.82 fib level. Upside trajectories range from the $50.54 fib level up towards the $63.34 fib level.

 

 

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