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Why Is Ciena (CIEN) Down 6.6% Since the Last Earnings Report?</p>

A month has gone by since the last earnings report for Ciena Corporation CIEN. Shares have lost about 6.6% in the past month, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ciena Q2 Earnings, Revenues Surpass Estimates

Ciena reported second-quarter fiscal 2017 non-GAAP earnings (excluding stock-based compensation) of $0.45, which increased 32.4% on a year-over-year basis. Including stock-based compensation, earnings were $0.38 per share, which beat the Zacks Consensus Estimate of $0.29.

Ciena reported revenues of $707 million, up 10.3% year over year and ahead of the Zacks Consensus Estimate of $694 million.

Product revenues (82.7% of revenues) were up 11.6% year over year to $584.6 million. Services revenues (17.3% of revenues) increased 4.8% year over year to $122.3 million.

Segment-wise, networking platforms (80.8% of total revenue) grew 11.57% year over year to $571.5 million, impacted by the addition of 12 new customers in the 8,700 platform and WaveServer.

Revenues from Software and software-related services (5.4% of total revenue) soared 23% year over year to $37.7 million, driven by accelerated software subscription.

Global services revenues (13.8% of total revenue) declined 0.2% from the year-ago quarter to $97.8 million.

Region-wise, Ciena’s revenues grew 7.3% in North America, 9% in Europe, Middle East and Africa (EMEA), 56.8% in Asia Pacific (APAC), but fell 41% in the Caribbean and Latin America.

The huge growth in APAC was primarily driven by revenue contribution from India, which amounted to almost $100 million in the first half of fiscal 2017.

U.S. customers accounted for 60% of its revenues, of which 10% was contributed by one major customer.

The company’s adjusted gross margin expanded 70 basis points (bps) year over year to 45.5% while adjusted operating margin expanded 290 bps to 10.8%.

The company ended the quarter with cash and investments of $993.3 million. Ciena generated solid operating cash flow of $72 million in the quarter compared with approximately $23.4 million in the prior quarter.

Guidance

Ciena also provided its guidance for third-quarter fiscal 2017. Revenues for the current quarter are forecast in the range of $710–$740 million. Non-GAAP gross margin is projected to be approximately in the mid-40% range. Non-GAAP operating expenses are projected to be $235 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. In the past month, the consensus estimate has shifted by 7% due to these changes.

Ciena Corporation Price and Consensus

 

Ciena Corporation Price and Consensus | Ciena Corporation Quote

VGM Scores

At this time, Ciena's stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with an 'C'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable for value and growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.


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