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Why Ciena Corp. Fell 10% in March

By Anders Bylund – Apr 5, 2017 at 5:45PM

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Hampered by an internal systems upgrade in the first quarter, the telecom equipment maker looks ready to come back swinging.

What happened

Shares of Ciena (CIEN 2.58%) fell 10.4% in March 2017, according to data from S&P Global Market Intelligence.

So what

The maker of telecom-grade networking equipment reported first-quarter results on March 8, and failed to meet Wall Street's revenue and earnings targets. Share prices dropped more than 10% the next day and the stock has stayed near that new baseline price level.

Data cables plugged into an active router.

Image source: Getty Images.

Now what

Ciena's first-quarter report may have been soft, but management offered positive guidance for the quarters ahead.

First-quarter sales missed analyst targets but still clocked in at 8.4% year-over-year growth. That momentum is expected to continue into the second quarter, yielding sales near $695 million or roughly 8.5% growth. At the time of the report, the average analyst was looking for flat to shrinking sales in the second quarter. The given gross margin and operating expense targets point to operating income of roughly $73 million, up from $28 million in the second quarter of 2017.

The revenue hiccup in the first quarter resulted from Ciena halting its shipments for a couple of days in order to perform an upgrade of its resource planning systems. This upgrade had been planned for two years and is not a recurring issue.

So Ciena's growth story will continue, with back-end systems freshly rebuilt to handle larger order volumes. Given the telecom industry's expected need to upgrade their long-haul networks over the next couple of years, that looks like a timely and necessary investment. Ciena shares have still gained 22% over the last 52 weeks, so this drop could be seen as a thrifty buy-in opportunity.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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