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Why Ciena Surged 20.1% Last Week

By Billy Duberstein – Dec 12, 2021 at 9:36PM

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The networking specialist is capitalizing on strong demand from telcos, cable companies, and cloud giants.

What happened

Shares of optical networking specialist Ciena (CIEN -0.18%) climbed 20.1% last week, after the company reported its fourth-quarter results. In addition to the strong results, Ciena's hardware focus has probably been an advantage, as investors have been selling high-multiple software-as-a-service (SaaS) stocks and buying more cyclical yet profitable technology companies as of late. 

So what

In the fourth quarter, Ciena's revenue grew 25.7%, and adjusted (non-GAAP) earnings per share of $0.85 rose a whopping 41.7% over the prior year -- although, remember, this was above-trend growth lapping the pandemic. Still, profits were in-line, and revenue beat expectations.

currents flowing through optical cables.

Image source: Getty Images.

Furthermore, the company gave strong guidance for next quarter and forecast revenue growth of 11%-13% for its upcoming fiscal year. Some might have expected to see a bigger deceleration or even a decline, given that management has guided for a long-term 6%-8% growth rate. However, it appears the buildout of 5G and cloud is feeding continued strong demand for Ciena's optical transport equipment across telcos, cable companies, and hyperscale data centers. New metaverse investments could also be playing a part. The continued strong growth outlook provided fuel for last week's gains.

Now what

After Ciena's weekly surge, the stock sits at all-time highs but trades at only around 18 times next year's earnings estimates. That is not terribly expensive compared with other parts of the tech market, but also not cheap, if Ciena does, in fact, turn out to be just a single-digit grower.

Yet Ciena has been outperforming its peers in recent years, as it has used its larger scale to invest heavily in research and development. Ciena has also been growing its smaller Blue Planet software segment for network orchestration and automation. While it doesn't contribute much in the way of revenue relative to its hardware, Blue Planet seems like a great tool for retention and customer wins.

While it doesn't operate in the highest-growth part of the tech industry, Ciena is a leader in its field, is buying back stock, and trades reasonably. For those looking to bet on the growth of 5G, cloud, and other long-term networking trends, one could do far worse than Ciena.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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