Ciena Profit Will Climb on Improved Business Diversification

Ciena, which provided network and communication infrastructure services to corporations, continues to better diversify its business.

Author:: Richard Saintvilus
Publish date:: Mar 4, 2015 6:10 AM EST

NEW YORK (TheStreet) –- AT&T (T) - Get Report, Verizon (VZ) - Get Report and other carriers didn't spend as much last year as expected, which weighed on a number of companies including Ciena (CIEN) - Get Report, which relies heavily on both telecom giants for almost one-third of its annual revenue.

But things are changing for the company, which reports earnings Thursday.

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Analysts are more optimistic carriers will spend more this year so Ciena, which provided network and communication infrastructure services to corporations, is diversifying its business to increase revenue and fight against competitors including Alcatel-Lucent (ALU) and Cisco (CSCO) - Get Report. Ahead of the company's fiscal first-quarter earnings results Thursday, analysts are raising earnings estimates for the quarter that ended in January and the full year ending in October.

The optimism stems from Ciena's consistent improvement in its customer base, which helped the company beat analysts' revenue expectations in the December quarter, despite lower revenue coming from its two biggest customers in Verizon and AT&T. As of the most recent quarter, Verizon and AT&T accounted for 26% of its total revenue, down from around 29%. So while carriers will remain an important revenue/profit source for Ciena, the company is also becoming less reliant on one single industry.

Also, Ciena is growing in broadband, data networking and optical equipment services. Combined, these businesses now account for roughly 60% of its total revenue. Still, the company reported a fourth-quarter loss of $8.2 million when analysts expected a profit.

For the quarter that ended in January, analysts expected earnings per share of 3 cents on revenue of $558.7 million. For the full year, ending in October, earnings are projected to climb 79% year over year to $1.06 per share, while revenue is projected to be $2.47 billion, up 8% year over year.

Ciena's shares are up 6.9% for the year to date. Analysts rate the stock a consensus buy with an average 12-month price target of $25, suggesting potential gains stock of 21%.

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