IT Hardware Stocks

Ciena Corp Valuation – July 2018 $CIEN

Company Profile (excerpt from Reuters): Ciena Corporation, incorporated on November 2, 1992, is a network strategy and technology company, which provides solutions that enable a range of network operators to adopt communication architectures and to deliver an array of services, relied upon by enterprise and consumer end users. The Company provides equipment, software and services that support the transport, switching, aggregation, service delivery and management of voice, video and data traffic on communications networks. The Company operates in three segments: Networking Platforms; Software and Software-Related Services, and Global Services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CIEN – July 2018

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 $3,605,301,646 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.64 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 307.46% Pass
6. Moderate PEmg Ratio PEmg < 20 6.44 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.99 Pass
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 2.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.64 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.94
MG Growth Estimate 4.99%
MG Value $72.71
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $57.07
MG Value based on 0% Growth $33.46
Market Implied Growth Rate -1.03%
Current Price $25.36
% of Intrinsic Value 34.88%

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 over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, 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 Undervalued after growing its EPSmg (normalized earnings) from $2.95 in 2014 to an estimated $3.94 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.03% annual earnings loss 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 above the price.

At the time of valuation, further research into Ciena Corporation revealed the company was trading above its Graham Number of $7.39. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 6.44, which was below the industry average of 53.59, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-48.

Ciena Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$48.00
Graham Number $7.39
PEmg 6.44
Current Ratio 2.64
PB Ratio 5.99
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $1,889,454,000
Total Current Liabilities $715,666,000
Long-Term Debt $3,101,138,000
Total Assets $5,113,367,000
Intangible Assets $2,439,638,000
Total Liabilities $4,852,256,000
Shares Outstanding (Diluted Average) 61,719,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.10
Dec2017 $7.18
Dec2016 $3.74
Dec2015 $5.01
Dec2014 $3.58
Dec2013 $4.00
Dec2012 $1.89
Dec2011 $1.79
Dec2010 $1.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.94
Dec2017 $5.14
Dec2016 $3.96
Dec2015 $3.80
Dec2014 $2.95
Dec2013 $2.35
Dec2012 $1.34
Dec2011 $0.91
Dec2010 $0.39

Recommended Reading:

Other ModernGraham posts about the company

Ciena Corporation Valuation – Initial Coverage $CIEN

Other ModernGraham posts about related companies

Cognex Corp Valuation – July 2018 $CGNX
Sanmina Corp Valuation – July 2018 $SANM
II-VI Inc Valuation – July 2018 $IIVI
CEVA Inc Valuation – July 2018 $CEVA
MTS Systems Corp Valuation – June 2018 $MTSC
Jabil Inc Valuation – June 2018 $JBL
Arrow Electronics Inc Valuation – June 2018 $ARW
Lam Research Corp Valuation – June 2018 $LRCX
Emerson Electric Co Valuation – June 2018 $EMR
Skyworks Solutions Inc Valuation – June 2018 $SWKS

Disclaimer:

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top