Insiders Sell, Institutions Buy Ciena Corporation

March 14, 2022 by Thomas Hughes

Ciena Corporation Falls On Tepid Results

Ciena Corporation (NASDAQ: CIEN) has been in a freefall for the last month or so and might be heading lower in the near term. The bad news is that results, however good, are completely priced into the market and general market conditions are deteriorating. This may lead the stock down another 5% or more but we don’t think it’s time to get too bearish on the name. For one, the institutions are buying or at least have been buying strongly over the past year so we are expecting to see them scoop up some more shares as the dip deepens. Insiders, on the other hand, have been selling but their activity is minor and consistent with share-based compensation so we aren’t worried about it.

Total institutional activity over the past 4 quarters is worth more than 40% of the market cap with shares trading at their new lows and fully 32% of the activity is buying. This brings total ownership up to 86.2% and we think the figure will grow over the next 12 months. Ciena Corporation is fundamental to tech infrastructure and the 5G rollout so its products are in high demand. The analysts rate the company a firm Buy which is in alignment with the institutional activity and should also help support price action. There have been no commentaries out since the report was released but the trend in sentiment is upward. The rating is edging higher in the 12-month comparison and the consensus price target implies about 50% of upside with shares trading near $55.

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Strong Results Do Not Impress Ciena Corporation Investors

Ciena Corporation had a great quarter but the results were largely in-line with expectations and did nothing to inspire bullish behavior. The $844.4 million in revenue is up 11.5% from last year and 1.4% in the 2-year stack but only as-expected in regards to the consensus figures. The company says demand is strong across all end markets and that can be seen in the results as well. The CPO segment, more than 64% of revenue, grew by 5.6% while the Routing segments expanded by 33.3% and the much smaller Software & Services and Maintenance/Support segments grew 46% and 7.3% respectively.

Moving down to the margin, there is some good news but not enough to offset the tepidness of the revenue data. The gross and operating margins contracted on a GAAP and adjusted basis but not quite as much as expected. This resulted in an adjusted EPS of $0.47 which is down from last year but beat the consensus by $0.02.

Looking forward, the company says Q1 business and the to-date portion of Q2 have given it increased visibility for the remainder of the year and the confidence to say they will achieve strong revenue growth for the year. In our view, demand for routing/connecting equipment and services is only going to increase and we are expecting broad economic improvement in the second half so Ciena Corporation should easily post YOY growth.

The Technical Outlook: Ciena Corporation Seeks Support

Price action in Ciena Corporation fell hard in the wake of the earnings report and is indicated to open lower now. The price action will likely move down to the $54.30 level during the session and may even break through it. In that scenario, price action may fall all the way to the $52 level where we would expect to see a strong bounce if not a bottom. If, however, price action can find support near the $54.30 level it may be at a bottom but it is too early to tell for sure. If support is confirmed at this level with a second bounce we would start get interested again.

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About Thomas Hughes

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Experience

Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.