Seeing Clearly Now? Goldman Expects Ciena, ONI to Meet Estimates

(Updated from 9:34 a.m. ET)

Goldman Sachs analyst Natarajan Subrahmanyan is maintaining his "cautious stance on telco equipment" following dramatic downward guidance from a number of names within the sector. But in a research note, the analyst wrote that he expects Ciena (CIEN Quote) and ONI Systems (ONIS Quote) to report strong results in the second quarter, although "upside to numbers may be limited by pricing pressures."

With upward surprises difficult to imagine in the current telecom demise, according to Subrahmanyan, just hitting estimates should prove beneficial to the stocks. "While the fundamental news for telco equipment continues to be negative, we believe that companies that make their numbers in this environment will see stock appreciation," he wrote.

Shares of ONI rose 3.9% to $24.64 in recent Nasdaq activity, and Ciena climbed 2.8% to $33.15.

Merrill Lynch had a slightly different take after meeting with Ciena executives at a trade show yesterday. Merrill said visibility looks good for the remainder of the year, but added that fiscal 2002 is uncertain, saying negative news is now more likely than positive guidance from Ciena.

Though the outlook continues to remain gloomy overall for the telecom sector, as "there are no clear signs of business stabilizing yet and we are seeing signs of deterioration in Europe," Goldman's Subrahmanyan said, the analyst recommended buying on dips in the stock price of both ONI and Ciena.

Goldman rates both ONI and Ciena market outperformer.