Ciena's Priced for Perfection, and Earnings Come Pretty Close

Ciena(CIEN Quote) -- up 243% this year even after a recent pullback -- continued to earn its wonder stock status Thursday, posting earnings that topped expectations and showing that the new clients keep rolling in.

The Ciena File

Operations

Business: Makes optical networking switching components

2000 Revenue: $858.8 million

2000 Earnings Per Share: 33 cents

2001 Estimated Earnings Growth: 103%

Stock Snapshot

52 Week Range: $22.7 - 151

Percentage Change from Jan. 1: 243%

Market Cap: $26.7 billion

P/E Ratio: 477

Shares Outstanding: 284 million

Now the question is: Is the company worth a trailing price-to-earnings ratio of 477? We'll take a look in today's Stock in the Spotlight.

The Linthicum, Md.-based optical networking company announced fiscal fourth quarter earnings of 14 cents a share, beating consensus estimates of 12 cents. These earnings came on a 23% revenue increase from the previous quarter, and an increase of more than 100% from the year-earlier quarter. Fiscal 2000 revenue surged 78%, and Ciena raised its 2001 revenue growth forecast to 75% to 85%.

With a client roster that is big and getting bigger, Ciena boasts impressive upside potential. Signing new deals with Genuity (GENU Quote) this week, and rumblings of a deal with powerhouse Williams Communications (WCG Quote), Ciena is moving at a strong pace. With a customer base including Qwest and Sprint, a base in Europe growing and its presence in Asia picking up steam, the quantity of customers might only be overshadowed by their diversity.

In announcing earnings this morning, CEO Patrick Nettles said the big growth in new deals was a key to the quarter's success. This growth must accelerate to support Ciena's lofty P/E.

Although at it's still in the nosebleed level, the P/E has dropped dramatically since Nasdaq peaked in March, It was over 1,000 then and many expect Ciena to grow back into it. Forward-looking P/Es for Ciena are around 150 for fiscal year 2001, and around 95 for the following year.

5 Day

4 Year

Ciena's in the sweet spot of the tech sector right now, but it's also a highly competitive one. The company is a pioneer in the development of WDM -- wavelength division multiplexing -- a technology that allows the transfer of information over different colors of light. This separation of the spectrum in optical information transference increases exponentially the amount of data possible to be transferred over optical fibers without any increase in the size of the fiber-optic cable. Industry powerhouse Nortel Networks(NT Quote) is creating similar technology and has a huge client base, but still lags behind Ciena in developing the new technology.

The company has come a long way since its scuttled marriage to Tellabs in 1998 hammered the stock and raised concerns whether it could go it alone. It's certainly proved that, and some analysts say if consolidation is in the works, Ciena is in a strong position as an acquirer.

Regardless, the funds listed below, which have gobbled up the company's stock, continue to believe in Ciena.

Funds With the Biggest Stake in Ciena
Fund	Percentage of Assets in CIEN	1-Week Return	YTD Return
(MGIQX Quote)Millennium Growth & Income	8.7%	18.7%	-19.8%
(MAFOX Quote)Merrill Lynch Focus Twenty A	6.8	18.6	-25*
(ROGSX Quote)Red Oak Technology Select	6.6	18.1	10.6
(WOGSX Quote)White Oak Growth Stock	6.5	4.1	13.4
(POGSX Quote)Pin Oak Aggressive Stock	5.5	13.4	5.3
(TIFQX Quote)Firsthand Technology Innovators	5.4	10.9	-31.7
Frontegra Emerging Growth	5.4	-	-22.9
(FSDCX Quote)Fidelity Select Developing Comm	5.2	13.4	-14.1
(DNLDX Quote)Dreyfus New Leaders	5.1	4.1	4.3
(NLCBX Quote)Pilgrim Large Cap Growth B	4.7	4.6	-15.2
*3-month return. Source: Morningstar. Performance through Dec. 7.

Background Check Check out these recent stories on TheStreet.com about Ciena

Ciena Beats Estimates, Raises 2001 Revenue Guidance (12/7/00): Ciena posted fourth-quarter earnings that exceeded analysts' expectations by 2 cents and raised its revenue expectations for 2001. The networking equipment maker earned $41.3 million . . . more Ciena's Shocking Plan: Back the Winners (11/13/00): Telecom's slowdown story is now so well-chronicled that Ciena President and Chief Operating Officer Gary Smith prefers to talk subplot . . . more Ciena Hits All-Time High, After News of Contract With Korea Telecom (9/25/00): Shares of Ciena, a maker of telecommunications equipment, soared to an all-time high Monday after the company announced it had won a contract to supply Korea Telecom . . . more Ciena Charge Gives Networking Investors a Scare: (9/5/00) Ciena slipped 4% Tuesday after warning that a customer might not be able to pay its bills. Closely held European telecommunications service company . . . more