On Thursday, B.Riley maintained a positive stance on shares of CIENA (NYSE:CIEN), reiterating a Buy rating and a $68.00 price target for the company. This follows CIENA's report of its fourth-quarter earnings, which showed revenues of $1,124 million and earnings per share (EPS) of $0.54. These figures stood against consensus estimates, which anticipated revenues of $1,103 million and a higher EPS of $0.65.
The discrepancy in EPS was primarily attributed to a $39 million excess obsolescence inventory charge, which impacted gross margins (GM) by approximately 200 basis points. According to InvestingPro data, CIENA maintains a healthy gross profit margin of 43.43% and operates with a moderate level of debt, with a current ratio of 4.06 indicating strong liquidity.
CIENA's fourth-quarter revenue displayed a marginal year-over-year decline of 0.5%, marking an improvement from the 11.8% decrease observed in the third quarter. The company's book-to-bill ratio was over 1, and the backlog grew by $150 million quarter-over-quarter to reach $2.1 billion.
Gross margin and operating margin for the quarter were reported at 41.6% and 10.0%, respectively, compared to 43.7% and 8.0% in the prior quarter. With a market capitalization of $12.25 billion, CIENA has demonstrated strong momentum, achieving a remarkable year-to-date return of 62.65%. For deeper insights into CIENA's financial health and growth prospects, InvestingPro subscribers have access to over 10 additional exclusive ProTips and comprehensive analysis.
A breakdown by product category revealed that Optical Networking revenue grew 4.2% year-over-year to $779.6 million, while Routing & Switching experienced a significant drop of 38.4% to $79.4 million. Software (ETR:SOWGn) revenue, however, increased by 20.6% to $123.1 million.
Geographically, the Americas led with a 6.3% revenue increase to $852.2 million, while Europe, the Middle East, and Africa (EMEA) saw an 8.2% decrease to $150.7 million, and the Asia-Pacific (APAC) region declined 26.1% to $121.2 million. Cloud segment revenue also fell by 3% year-over-year to $382 million.
Looking ahead, CIENA anticipates a strong order book for fiscal year 2025, buoyed by a stabilization in carrier spending after two years of underinvestment. The company has provided a revenue guidance range of $1.01 billion to $1.09 billion for the first quarter of FY25, aligning with consensus predictions of $1.0 billion.
For the same quarter, gross margin and operating expenses are expected to be in the low-40 percent range and around $350 million, respectively. CIENA projects its revenue to grow by 8%-11% in FY25, surpassing the consensus estimate of 7.2%.
In response to the earnings report and the optimistic forecast for FY25, CIENA shares surged by 19% within the trading day, reaching $86.02 and trading near its 52-week high. The company's stronger-than-expected outlook for the upcoming fiscal year has been a key driver of investor sentiment.
B.Riley has indicated plans to revisit their estimates and price target following further discussions with CIENA's management. InvestingPro analysis suggests the stock is currently trading at a premium valuation with a P/E ratio of 89.45, and our Fair Value model indicates the stock may be overvalued at current levels. Discover comprehensive valuation insights and access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
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