Ciena Corporation: Will This 5G Stock Surge to New Highs?

Why CIEN Stock Deserves the Attention of 5G Stock Investors

The past year has been a phenomenal period for U.S. stock investors, with the S&P 500 index gaining nearly 30%. But not all tickers have been shooting through the roof.

Take a look at Ciena Corporation (NYSE:CIEN), for instance.

Headquartered in Hanover, MD, Ciena is a telecommunications networking equipment and software supplier. The company was founded in 1992 and now serves more than 1,700 customers in more than 80 countries around the world. (Source: “Ciena Corporation: Summer 2021,” Ciena Corporation, last accessed August 31, 2021.)

Generally speaking, investors have been quite enthusiastic about tech stocks over the past year, but in the case of Ciena Corporation, it hasn’t always been sunshine and rainbows.

Take a look at the chart below.

At the beginning of September 2020, Ciena stock climbed to over $60.00 per share, but it soon fell off a cliff after an earnings report. CIEN stock then consolidated for about two months before starting its way back up.

By late January 2021, shares of Ciena Corporation bounced back to about $55.00 apiece. They then traded sideways between $50.00 and $55.00 before an earnings-induced breakout in early June. During the breakout, Ciena stock went above $60.00 again.

However, CIEN stock wasn’t able to stay at that level, and it seems to have fallen back to its previous trading range. At the time of this writing, Ciena stock trades at $56.86 apiece.

Ciena Corporation (NYSE:CIEN) Stock Chart

Chart courtesy of StockCharts.com

That said, I wouldn’t call CIEN stock a down-and-out ticker. Its 52-week high was $61.09, so if the company gets more investor attention, a new high could be within reach.

And now there’s one thing that could lead to more investors checking out Ciena stock: 5G technology. Ciena Corporation’s networking equipment and software solutions help telecom operators deploy 5G networks.

In other words, the company’s business stands to benefit as we continue in the 5G era.

According to the company’s most recent earnings report, Ciena Corporation generated $833.9 million of total revenue in the second quarter of its fiscal 2021, which ended May 1. The amount was 6.7% lower than the $894.1 million of revenue it earned a year earlier. (Source: “Ciena Reports Fiscal Second Quarter 2021 Financial Results,” Ciena Corporation, June 3, 2021.)

While the top-line number didn’t seem impressive, there were other metrics that showed improvement. For instance, Ciena reported an adjusted gross margin of 49.2% for the second quarter of fiscal 2021, marking a 230-basis-point expansion from a year earlier.

Meanwhile, the company’s cash flow from operations totaled $225.0 million in the reporting quarter, a huge improvement from the $91.0 million generated in the year-ago period.

Thanks to strong cash flow from operations, Ciena Corporation’s cash and investments reached $1.4 billion at quarter-end, compared to $988.5 million of cash and investments a year earlier.

Note that the company was able to build up its cash pile even as it returned cash to investors through buybacks. In its second fiscal quarter, Ciena Corporation repurchased about half a million shares of its common stock for an aggregate price of $26.2 million.

The best part, though, is that the company’s service-provider customers could be ready for big spending again.

Ciena’s president and chief executive officer, Gary Smith, said in June: “…we noted that service provider spend, which has been constrained since the second half of 2020 needed to return to more typical pre-pandemic levels.”

He continued,

I am pleased to report that during Q2, we began to see material amelioration of the operational and fiscal caution of key service provider customers around the world. And we believe that this is translating into a more normalized approach to network investments and operations, including more focus on new architecture builds and deployments.

(Source: “Ciena Corporation (CIEN) CEO Gary Smith on Q2 2021 Results – Earnings Call Transcript,” Seeking Alpha, June 3, 2021.)

For the third fiscal quarter, management expects $950.0 to $980.0 million in revenue and an adjusted gross margin of 46% to 47%.

Analyst Take

Ultimately, Ciena Corporation may not be as well known as other 5G stocks, but as the rollout of 5G networks accelerates, the company could deliver better-than-expected growth.

And that could drive the price of CIEN stock to new highs.