Ciena Corporation: Up 100% Since March, This 5G Stock Needs to Be…

Ciena Stock Up 42% in 2020 But Still Looks Cheap

Ciena Corporation (NYSE:CIEN) provides communications equipment that is critical for the deployment of 5G technology. With 5G deployment still in its infancy, CIEN stock is one of the best tech stocks to watch over the coming years.

Ciena stock has climbed 44.2% year-over-year and 42.1% year-to-date. Since the stock market bottomed in March, Ciena’s share price has advanced a frothy 100%. And the company continues to build on those strong gains.

In June, Ciena reported “strong revenue and outstanding profitability.” (Source: “Ciena Reports Fiscal Second Quarter 2020 Financial Results,” Ciena Corporation, June 4, 2020.)

The company has a strong balance sheet and solid cash flow generation. Despite having a cash position of almost $989.0 billion, the company is still prudent. In light of the coronavirus pandemic, Ciena suspended its share repurchase program and is keeping its operating expenses in check.

Putting its share repurchase program on the back burner might be disappointing for some investors, but Ciena Corporation’s financial strength provides it with long-term resilience and flexibility to better navigate the current economic environment.
 
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CIEN Stock Overview

Ciena is a leading provider of advanced optical networking components used by telecommunications companies. (Source: “Ciena Corporation: Summer 2020,” Ciena Corporation, last accessed August 13, 2020.)

These companies need to update their fiber optic networks to support the huge increase in bandwidth needed for 5G, which can support speeds of up to 20 gigabytes per second, versus 4G’s top speed of one gigabyte per second.

Suffice it to say, spending on fiber optic cable is going to explode over the coming years, which is a boon for Ciena’s 5G networking products.

The company provides equipment, software and services that support the transport, switching, aggregation, service delivery, and management of voice, video, and data on communications networks.

In addition to helping telecommunication companies supercharge their fiber capacity, Ciena Corporation controls approximately 25% of the optical network hardware market.

Ciena’s more than 1,500 customers include major corporations like AT&T, Inc. (NYSE:T), Verizon Communications (NYSEVZ), and Sprint.

Strong Revenue and Profitability

On June 4, Ciena announced that its revenue for the second quarter ended May 2 increased 3.4% year-over-year to $894.1 million. (Source: Ciena Corporation, June 4, 2020, op. cit.)

Net income came in at $91.7 million, or $0.59 per share, a 74% increase over the second-quarter 2019 net income. 2020 second-quarter adjusted net income was $117.4 million, or $0.76 per diluted common share, a 54% increase over the adjusted net income recorded in the same prior-year period.

“In this uncertain environment, we delivered industry leading financial performance during our second quarter, including strong revenue and outstanding profitability,” said Gary Smith, President and CEO.

“Our strategy, centered around innovation, diversification and global scale, has resulted in a resilient business capable of navigating challenging times and delivering strong shareholder value over the long-term.” (Source: Ibid.)

Analyst Take

Ciena Corporation helps provide the 5G backbone for the telecommunications industry. The company has a strong balance sheet, provides strong momentum in performance and growth, and consistently increases its market share both in times of market growth and decline.

Ciena also continues to deliver strong profitability. From 2016 to 2019, the company’s adjusted earnings per share have climbed at a compound annual growth rate of 31.4%, from $0.93 to $2.11. (Source: “Ciena Corporation Summer 2020,” Ciena Corporation, op. cit.)

Furthermore, Ciena stock has been seriously outpacing its peers. While many tech stocks have been struggling to eke out a year-to-date gain, CIEN stock is up more than 40% this year.