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Ciena rebounds on upbeat outlook

Ciena raced ahead 10 percent even though the company made no announcement. Its upbeat tone at an investment conference coupled with some analyst notes had investors assuming current projections were on track.

Analysts and investors were doing a reverse interpretation of a new trend; companies have been issuing warnings right and left ahead of investment conferences in order to keep up with regulation FD (fair discosure). Since Ciena (Nasdaq: CIEN) didn't issue any statement ahead of its appearance at a Merrill Lynch conference, that must mean things are going great.

That reassured investors who had lumped Ciena in with other optical-equipment stocks Monday, sending its shares down 21 percent on that day alone. It fell along with Juniper Networks (Nasdaq: JNPR) and ONI Systems Corp. (Nasdaq: ONIS)--other fiber-optic firms who got slashed in Salomon Smith Barney's sweeping cuts to estimates for telecommunication equipment suppliers. Ciena shares had revived $4.56 to $57.94 on Thursday.

In a research note from Merrill Lynch Thursday, the investment firm noted that Ciena's upbeat presentation at its Global Communications Conference in New York Wednesday provided no change in outlook, and said that must be a sign it's reiterating its forecast.

In mid-February, the company topped first-quarter earnings and revenue estimates. CEO Patrick Nettles also said he expects Ciena's business will continue to grow faster than the overall market, and raised revenue projections for 2001.

The company's business looks as strong now as it did six months ago, a remarkable feat considering how its competitors, like Nortel (NYSE: NT) have issued multiple downward revisions to their forecasts.

Ciena's saving grace has been the fact that they install 80 percent to 90 percent of their equipment, so they know what customer inventory looks like, according to the Merrill report.

The company also mentioned during its presentation that six to 10 of its clients are performing enough work to make up 10 percent of revenue each, a good sign for diversity and visibility according to the research brief.

ABN AMRO analyst Kenneth Leon also lauded Ciena in a research note Thursday.

"We believe the Company has been gathering strong momentum since last March," Leon wrote. He has been tracking customer wins, and said the company has an "open field running," with its CoreDirector intelligent optical switch winning 90 percent of projects in the last 12 months.

Lehman Brothers analyst Steven Levy also put out a positive report on the company Wednesday after a tire-kicking tour of the company.

Levy said revenue visibility across new and existing product lines was quite strong at the end last quarter, and none of Ciena's customers has cancelled or pushed out orders in the past few months.

"Our conclusion today is the same as it was one month ago; Ciena's fundamentals couldn`t be stronger," Levy wrote.

The stock may have gotten some extra mileage out of a report in Thursday's Wall Street Journal that said Nortel's pain may be Ciena's gain. The article said Ciena has been making several sales wins over Nortel and other optical-equipment suppliers.