Tag Archives: afop

Ciena Gets Buy Rating Affirmation After Alliance Gets A Buyer

Competing in the shadow of Cisco Systems ( CSCO ) can be a tough place for Ciena ( CIEN ), the specialty fiber optics developer for telecom and cable service providers: Perform inadequately and you’re dust. Perform well and get picked off. In fact, perform so-so and get picked off, like Alliance Fiber Optic Products ( AFOP ) getting bought out by Corning ( GLW ) in a $305 million deal disclosed Thursday. “Ciena is quick to recognize its financial performance has fallen short of investor hopes, and its own,” said Nomura analyst Jeffrey Kvaal in a research note Friday, after spending time with Ciena Chief Technology Officer Steve Alexander and investor relations executive Gregg Lampf. Ciena is “taking steps to improve financial performance,” Kvaal said. “Ciena has suffered from high investor expectations ( Verizon ( VZ ) metro timing), macro factors (foreign exchange, mergers), and its own execution. To address these issues, Ciena has cleaned up its execution, widened the guidance range and added conservatism to its European guidance. “We would have preferred the guidance conservatism to apply more broadly. We believe many investors will only consider the stock following several quarters of outperformance, despite Ciena’s steady annual progress.” With such ambivalence, Kvaal reaffirmed Nomura’s buy rating and 24 price target on Ciena stock, which was up 2.5%, above 18, in afternoon trading in the stock market today . That’s still 32% below a nearly 16-month high of 26.50 touched last July. Shares fell below their 50-day moving average this week. Alliance Fiber Optic stock was up 19% Friday afternoon, at a six-month high near 18.50. That’s the price Corning agreed to pay for Alliance, an agreement  disclosed after Thursday’s market close. Corning was down a fraction Friday afternoon, near 20.50, near a nine-month high at 21.07 reached March 30. Shares of networking king Cisco were up a fraction, near 28. Alliance and Corning both earn middling 63 IBD Composite Ratings, while Ciena has an 81 CR. Composite Ratings rank companies by major metrics such as sales and earnings growth over the past 12 months. “Beneath the headlines,” Nomura’s Kvaal said, Ciena offers “a solid growth story with rising margins.” Kvaal notes that Ciena works in the crosstown and long-haul markets beyond 50 miles, not inside the data center or campus markets. “It thus does not see the intra-data-center strength the component vendors are seeing and is not affected by Microsoft ’s ( MFST ) Colorz launch (announced in March). ” For Ciena’s fiscal Q1, ended Jan. 31, the company earned 18 cents per share minus items, up 50% from the year-earlier quarter, beating analysts’ 14-cent estimate. Revenue rose 8% to $573 million but missed analysts’ $576 million expectation. For Q2, analysts polled by Thomson Reuters expect EPS ex items to fall 23% to 27 cents, on revenue up 1.5% to $631 million.

Arista Networks’ Q4 Connects With Investors; Sellers Unplug Alliance

Starting what almost surely will be its first year with revenue of $1 billion, Arista Networks ( ANET ) connected with buyers, who drove the stock up by double-digit percentages Friday, while sellers unplugged Alliance Fiber Optics ( AFOP ), its stock falling by double digits, after both companies reported Q4 earnings late Thursday. Guess which did better. Both companies compete with bigger computer networking product makers  Juniper Networks ( JNPR ) and much bigger Cisco Systems ( CSCO ). Cisco stock was flat in early afternoon trading Friday, while Juniper was up 1%. Arista stock rose as much as 16% Friday and was up 11%, near 65, in early afternoon trading in the  stock market toda y, still 27% off an eight-month high of 88.56 set June 24. Meanwhile, Alliance’s Q4 results were hurt by cutbacks from its top customer,  Alphabet ‘s ( GOOGL ) Google. Alliance stock fell as much as 17% Friday, touching a nearly 16-month low, and was down 15% in early afternoon trading, near 12. It’s 45% off a nearly two-year high set July 24 at 22.35. Helped by Microsoft ‘s ( MSFT ) Azure public cloud, Arista said Q4 earnings jumped 51% to 80 cents per share minus items, as revenue rose 41.5% to $245.4 million. Wall Street analysts polled by Thomson Reuters expected 61 cents and $241 million. Arista provides a network operating system, data center storage and other products. Arista’s non-GAAP gross profit margin settled at 64%, near the high end of the 62%-65% range it had forecast, but that was down from the 67.4% in Q4 2014 and 69% in Q1 2014, said FBN Securities analyst Shebly Seyrafi in a research note. “Therefore, there is some downside risk on the (gross margin) line going forward,” he wrote. Still, he and other analysts said Arista had solid momentum. Arista guided the Q1 non-GAAP gross margin to 62% to 65%, and revenue at $232 million to $240 million. Analysts expect Q1 EPS to rise 14% to 57 cents, on sales up 30% to $233.48 million. Reiterating Needham’s buy rating with a 105 price target, analyst Alex Henderson said in a Friday research note that “the news should only get better over 2016. “We think the shift to (faster-bandwidth) 25G architectures will accelerate Arista’s share gains,” he wrote. “We think Arista could pick up 3-5 points of market share on a base of 12%, driving continued stronger-than-forecast growth. This company is best in breed.” Seyrafi had noted that when FBN began covering Arista in September 2014, “one of the key bear points” was that Microsoft revenue was “quite robust,” comprising 11% of total Arista sales, as Microsoft built out Azure. He thought, though, that revenue for Arista might decline after the buildout. Instead, Arista said 2015 revenue from Microsoft topped $100 million, 12% of total sales, “so sales to MSFT do not appear to be slowing down,” said Seyrafi. FBN retained its outperform rating with an 80 price target for Arista stock. So what’s happening with little Alliance Fiber Optics, where adjusted EPS crashed 80% to 5 cents in Q4, while sales fell 13% to $16.4 million? Google “plummeted from 45% of revenue to 20% in (Q4) as it sharply reduced inventory at the behest of its new (Alphabet/Google) CFO (Ruth Porat) and cut capex by 40%,” said Needham’s Henderson in a separate research note Friday. Alliance “was caught in the crossfire,” he said. “But all indications are that that’s over. Google is expected to meaningfully increase spending in 2016, and the shift to 25G architectures should strongly improve AFOP’s results. … Despite the miss in (Q4), we are maintaining our 2016 and 2017  EPS estimates and reiterating our buy rating and 20 target price.” Needham expects adjusted EPS of $1.18 for 2016, up from  95 cents in 2015. Image provided by Shutterstock .