NEW YORK (TheStreet) -- Ciena Corp. (CIEN) is down 8.9% to $21.21 Friday, after it guided its operating margin to be at the low end of the company's 7% to 10% target range for fiscal 2014, ending in October.
Citiigroup (C), which rates the communications equipment company as "neutral," thinks that operating margins around 10% are still far off in the company's future.
"While we have become believers in the sustainability of Ciena's product cycle, op margin expansion seems to still be coming in fits and starts challenging the earnings power of the company and making it difficult to currently argue for more than a 20x P/E on our CY14 $1.24 est."
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TheStreet Ratings team rates CIENA CORP as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CIENA CORP (CIEN) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.1%. Since the same quarter one year prior, revenues rose by 17.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 68.08% and other important driving factors, this stock has surged by 39.95% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Net operating cash flow has increased to -$37.16 million or 18.73% when compared to the same quarter last year. Despite an increase in cash flow, CIENA CORP's average is still marginally south of the industry average growth rate of 20.12%.
- 45.29% is the gross profit margin for CIENA CORP which we consider to be strong. Regardless of CIEN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CIEN's net profit margin of -2.98% significantly underperformed when compared to the industry average.
- You can view the full analysis from the report here: CIEN Ratings Report