Q2 Preview: Ciena (CIEN) Could Catch Bid as OTN Momentum Sees Favorable Shift

Ciena Corp. (Nasdaq: CIEN) ended Tuesday's session higher heading into its second-quarter earnings report, expected out before the market opens Wednesday.

The Linthicum, MD-based networking equipment and service provider is expected to report a loss of 10 cents per share on revenue of $428.10 million. The number would be a sequential improvement; Ciena reported a loss of 14 cents per share on sales of $433.3 million last quarter.

Shares gained 22.5 percent through the quarter and are down nearly 14 percent since. Still the stock is up about 11.9 percent year-to-date.

Data from Bloomberg shows a bullish sentiment for Ciena: 18 analysts have a Buy rating, six say to Hold, and three suggest to Sell. The analyst price target consensus is $31, with a low of $18 and high of $37. Ciena has traded in a range of $11.86 to $29.24 over the last 52-weeks.

Analyst Commentary

• Wells Fargo sees a loss of 9 cents per share with sales of $433 million. The firm is bullish on the stock, commenting: "Ciena is likely to deliver improving top-line trends through H211 fueled by increased deployments of CIEN's 40/100G transport, OTN switch and wireless backhaul solutions. Moreover, we believe improved mix of high margin switching and CESD sales and solid expense discipline should enable Ciena to exit FY11 with operating margin in the 7 to 10 percent range, which we view as a potential catalyst for the stock." Wells Fargo is modeling for gross margins of 42 percent.
  
  
• Deutsche Bank recently released a research note on Ciena, noting positive momentum in OTN switching. Deutsche sees a loss of 49 cents for Ciena in the quarter. "Our latest round of industry conversations suggests growing momentum for the adoption of the OTN architectural approach, by Tier-1 US and rest of world telcos... While our prior checks have noted opportunities for upgrades to the OTN architecture at carriers such as AT&T (NYSE: T), our latest research suggests that Verizon (NYSE: VZ) and other Tier-1 telcos are likely to utilize OTN switching as well, for handling their metro Ethernet and SONET voice/data services, commencing in early CY12." Deutsche views the momentum as positive for Ciena's "5430/OTN and 6500/transport platforms in the CY12/13 time-frame. We note no meaningful change in the competitive landscape for Ciena's next gen platforms, and view the need for custom silicon to implement 100G+ coherent transport and granular OTN switching as roughly a 1-2year time to market advantage for Ciena."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

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