Ciena Corporation (NYSE:CIEN) caught my eye after its stock started to move significantly this week. The company provides communications networking equipment, software, and services that support the transport, switching, aggregation, and management of voice, video, and data traffic worldwide. Before it started its move higher on the back of a moderately strong quarterly report, the stock was sitting at one-year lows around $18.50. But I think that the stock is turning and a profit can be made on a trade to the upside because of the improvement in the company’s operations and its guidance.
Although the company is still losing money, it seems things are improving as the losses are narrowing. For the fiscal second-quarter 2014, Ciena reported revenue of $560.0 million as compared to $507.7 million for the fiscal second-quarter 2013. Ciena’s GAAP net loss for the fiscal second-quarter 2014 was $(10.2) million, or $(0.10) per common share, which compares to a GAAP net loss of $(27.1) million, or $(0.27) per common share, for the fiscal second-quarter 2013. Ciena’s adjusted (non-GAAP) net income for the fiscal second-quarter 2014 was $19.4 million, or $0.17 per diluted common share, which compares to an adjusted (non-GAAP) net income of $2.2 million, or $0.02 per diluted common share, for the fiscal second-quarter 2013. Gary B. Smith, president and CEO stated the following:
As a direct result of our expanding role and reach in the industry, we delivered strong financial results in both our second-quarter and first half of fiscal 2014, including continued revenue growth and increased operating leverage. As the shift continues toward on-demand networking models and as we continue to diversify our business, we expect to deliver steadily improving financial performance, including performance in the second half of the year that is stronger than the first half.
It is also important to note that besides the financial improvement, the company has made strides in other areas that don’t make the headlines. For example, the company is succeeding internationally as non-U.S. customers contributed 42 percent of total revenue.The company has a few larger customers on its lists and one customer accounted for greater than 10 percent of revenue and represented 21.5 percent of total revenue. The company’s total cash and investments totaled $430.2 million while cash-flow from operations totaled $2.0 million. Finally, the company’s inventories totaled $294.0 million and it expects to move more products in the coming quarters. For the third-quarter the company anticipates revenue in the range of $585 to $615 million. It expects adjusted (non-GAAP) gross margin in the low to mid 40s percent range while adjusted (non-GAAP) operating expenseswill be approximately $210 million range.
The company is moving toward profitability. It is cutting the amount of money it is losing each quarter. The company is improving in various metrics, including international spread. New customers are coming to Ciena and it is improving its operating leverage. Considering the stock is still depressed from levels just several months ago, I think a profitable trade can be made in Ciena.
Disclosure: Christopher F. Davis holds no position in Ciena and but may initiate a long position in the next 72 hours. He has a buy rating on the stock and a $26 price target.