Along similar lines, I don't believe that Ciena's management has received the credit it rightfully deserves for having navigated this tough carrier spending environment as well as it has, especially since carriers account for more than 30% of the company's revenue.

Profitability has also begun to trend in the right direction, with gross margins advancing roughly 3% year over year. More impressive, however, was the 14% jump in operating income, which demolished Street estimates by 60%. What this tells me is that management has shifted its focus towards returning value to shareholders.

What's more, given that Ciena has secured product wins from the likes of Comcast ( CMCSA) and CenturyLink ( CTL), the company is also gaining market share in some very important categories. It's evident that companies are looking for ways to differentiate themselves by delivering more value-added services to their clients.

This means that demand for network convergence with greater programmability will heighten. Very few companies have a portfolio that can offer these capabilities as well as Ciena's.

Investors should expect similar-to-better performance during the course of the next six to 12 months. Accordingly, from the standpoint of continued free cash flow and revenue growth, l see this stock as undervalued by at least 15%.

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

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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