Ciena Corporation Valuation – Initial Coverage $CIEN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Ciena Corporation (CIEN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ciena Corporation is a network specialist that focuses on providing communications networking solutions. The Company operates through four segments: Converged Packet Optical, Packet Networking, Optical Transport, and Software and Services. Its Converged Packet Optical portfolio includes networking solutions optimized for the convergence of coherent optical transport, optical transport network (OTN) switching and packet switching. Its Optical Transport products include stand-alone wavelength-division multiplexing (WDM) and synchronous optical networking/synchronous digital hierarchy (SONET/SDH)-based optical transport solutions. Its Packet Networking portfolio includes 8700 Packetwave platform, a multi-terabit packet switching platform for high-density metro networks and inter-data center wide area networks. Its software business consists of the development and licensing of element and network management software, and software-related services that support its hardware offerings.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CIEN – December 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,461,364,984 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.26 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -123.08% Fail
6. Moderate PEmg Ratio PEmg < 20 42.03 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.79 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.26 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.91 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.58
MG Growth Estimate 15.00%
MG Value $22.33
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $8.41
MG Value based on 0% Growth $4.93
Market Implied Growth Rate 16.77%
Current Price $24.38
% of Intrinsic Value 109.18%

Ciena Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $-1.97 in 2013 to an estimated $0.58 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 16.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Ciena Corporation revealed the company was trading above its Graham Number of $14.01. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 41.98, which was above the industry average of 28.12. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.68.

Ciena Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.68
Graham Number $14.01
PEmg 41.98
Current Ratio 2.26
PB Ratio 4.79
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $2,013,192,000
Total Current Liabilities $891,862,000
Long-Term Debt $1,025,991,000
Total Assets $2,882,442,000
Intangible Assets $413,685,000
Total Liabilities $2,116,101,000
Shares Outstanding (Diluted Average) 150,704,000

Earnings Per Share History

Next Fiscal Year Estimate $1.59
Oct2016 $0.51
Oct2015 $0.10
Oct2014 -$0.38
Oct2013 -$0.83
Oct2012 -$1.45
Oct2011 -$2.04
Oct2010 -$3.58
Oct2009 -$6.37
Oct2008 $0.42
Oct2007 $0.87
Oct2006 $0.01
Oct2005 -$5.30
Oct2004 -$10.57
Oct2003 -$6.09
Oct2002 -$30.58
Oct2001 -$40.24
Oct2000 $1.89
Oct1999 -$0.07
Oct1998 $1.26
Oct1997 $3.92

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.58
Oct2016 -$0.09
Oct2015 -$0.56
Oct2014 -$1.15
Oct2013 -$1.97
Oct2012 -$2.56
Oct2011 -$2.79
Oct2010 -$2.69
Oct2009 -$2.19
Oct2008 -$1.04
Oct2007 -$2.58
Oct2006 -$6.37
Oct2005 -$12.56
Oct2004 -$16.50
Oct2003 -$17.98
Oct2002 -$20.47
Oct2001 -$12.49

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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