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Don't Overreact to Ciena's Guidance

As it stands, analysts at RBC, UBS and FBR Capital Markets, all of whom downgraded shares of Ciena last quarter, have to second-guess that decision. The company's shareholders deserve an apology. Likewise, I don't believe the company's management has gotten the credit they deserve.

Ciena is slowly becoming a model of efficiency and an excellent producer of free-cash-flow. The company's converged packet optical division, which accounts for 63% of Ciena's total revenue, continues to grow at an impressive rate. Last year, that segment accounted for 53%. And there are no meaningful signs of slowing down.

What the Street fails to understand is that amid the weak outlook, Ciena's top line and order growth continue to exceed management's own estimates. Analysts should do a much better job at explaining this to investors.

For its performance, CEO Gary Smith said:

"We continue to benefit from the strategic decisions we've made to expand our role and reach in the market, driving more consistent performance and progress toward achieving our long-term operating targets."

In other words, Smith likes Ciena's market position. As do I. And as much as I like Cisco, I don't believe there's another telecom player that can match Ciena's cutting-edge approach to optical networking and traditional packet switching. And this makes Ciena an attractive acquisition candidate for a company like Cisco.

It's not often that a company appears in much better shape than its industry. The only concern to this story is that Ciena's growth goes hand-in-hand with carrier spending. But the company's management has made every necessary adjustment to deliver where and when it matters.

Even with the pessimistic guidance, Ciena's stock remains a buy. And I continue to project fair market value to reach $30 per share by the second half of 2014.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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