Option Trade 
Ciena Corporation (NYSE:CIEN) Calls 
Wednesday, 1st June, 2016

** OPTION TRADE: Buy the CIEN Oct 2016 17.000 call at approximately $1.90. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

by Ian Harvey

June 01, 2016

Ciena Corporation (NYSE: CIEN), a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic, is scheduled to release its fiscal second-quarter numbers before the market opens on June 2. Analysts forecast earnings of $0.27 per share, down from $0.35 during the same period last year.

Ciena has managed to grow earnings in recent quarters, but that is expected to change with analysts expecting earnings to fall 22.8% versus the same period last year. Despite the expected earnings drop this quarter, Wall Street still expects full-year earnings growth of 0.8%, and for earnings to jump 25.8%. The company has a strong history of posting better than expected results, with earnings topping the consensus each of the last five quarters.

One of the company’s closest competitors, Cisco Systems (CSCO) reported its quarterly results on May 18, topping estimates for both the top and bottom lines. The stock moved higher on the results, and pulled CIEN shares higher as well. Cisco’s report suggests that Ciena could also impress Wall Street, resulting in additional gains for the stock.

This company leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with its OPn architecture for next-generation networks. The company enables a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and it provides open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment.

The company has a 50-day moving average of $16.85 and a 200 day moving average of $19.21. Ciena has a one year low of $15.62 and a one year high of $26.50. The firm has a market capitalization of $2.33 billion and a price-to-earnings ratio of 112.87.

Positive Input

Nomura analyst Jeffrey Kvaal has stuck to his Buy rating, saying that he expects the gap between the solid market and low multiple to close. Furthermore, he sees Ciena's end market benefiting from growth in video, webscale traffic and the 100G optical cycle.

"We believe optical is gaining wallet share from routers; recent market data revealed 12 percent YoY growth in 1Q for optical vs. 2 percent for service provider routing. This includes the US (VZ metro), subsea, and in webscale with its recently launched WaveServer DCI product," the analyst said.

Kvaal noted that, despite its revenue miss, Ciena's first quarter share was above its 2015 share. Meanwhile, Ciena's operating margin has grown from a loss in 2010 to 11 percent in FY15 and Ciena's new intermediate-term target stands at 15 percent.

"A touch more conservatism might better insulate Ciena from the lumpy end market and, over time, allow for a sustainably higher multiple," Kvaal noted.

In addition, crisp execution, perhaps across a few quarters, may be needed to restore investor confidence.

"We believe Ciena is insulated from operator offers to reduce network cost and increase automation by centralizing network features to software in a data center—the photon will not be virtualized," Kvaal added.

Ciena continues to benefit from strong demand for packet-optical transport and switching products, integrated network, and service management software. Higher spending on optical upgrade and a higher number of orders from international customers will likely boost its top line. Additionally, growing demand for cloud-based on-demand networking capabilities is also likely to bode well. Mobile bandwidth consumption is expected to rise phenomenally, thereby providing more growth opportunities to the company.

Currently, the company is one of the leading suppliers of 40G and 100G optical transport technology. In addition, the company is making efforts to expand its Web Scale IT Architecture in the enterprise market by launching products like new chipsets, metro architecture and mobile backhaul solutions. It is believed that Ciena's strong product portfolio will boost its top line.

Drexel Hamilton issued their verdict on Ciena Corporation recently. The rating firm gave a Buy rating to this stock in a research note on Apr 8, 2016.

Also Citigroup analysts issued their verdict on Ciena Corporation recently. The rating firm gave a Neutral rating to this stock in a research note on Jan 27, 2016. According to a research note published on Jan 12, 2016, analysts at Morgan Stanley have upped their rating on the company stock from Equal-Weight to Overweight.

Ciena Corporation stock is currently trading at about $17.20 and lots of rating firms seem to have a target price set on the stock. The median 12-month price target of 17 analysts covering the company is $23.00, which suggests the stock could still gain more than 25 percent. The highest analyst price target is $32.00, which implies a gain of 14 percent. And roundups of analyst notes show that 12 are rating the stock a buy while 6 rate CIEN a strong buy. There are 2 equity research firms suggesting a Hold and 0 consider it Sell.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the CIEN Oct 2016 17.000 call at approximately $1.90. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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