Shares of Ciena Corp. headed up Wednesday, after a Citigroup analyst upgraded the networking equipment company, pointing to solid demand from customers like Sprint and Qwest.
Analyst Michael Genovese lifted the company to "Buy" from "Hold" and raised his target price to $35 from $33.
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Linthicum, Md.-based Ciena's shares rose $1.53, or 5.3 percent, to $30.21 in afternoon trading on the Nasdaq.
Genovese expects strong results for the company's fiscal first quarter, which ended in January, and he believes "visibility for the remainder of (fiscal) 2007 is solid as well."
Ciena derives about three-quarters of its sales from optical capacity products, the analyst noted, which boost fiber-optic networks by transmitting multiple light signals over the same circuit.
Demand for optical capacity continues to be "resoundingly strong," Genovese wrote.
"We believe the order environment for Ciena remains strong with solid visibility from a large number of customers including BT, Sprint, and Qwest," he added. "Ciena also has a solid deferred revenues balance of over $40 million and we note that inventories have increased in the past year to $106 million from $49 million."
Networking equipment companies are reaping the benefits of carriers upgrading, as customer demand faster broadband connections, thanks largely to the immense popularity of Internet video.
"As Juniper's CEO noted on their last conference call, YouTube is currently generating more network traffic than the entire Internet in the year 2000," Genovese wrote. Juniper Networks Inc. makes routers that direct data traffic over computer networks.
The analyst also sees less risk to Ciena now, as the optical market is strong but without signs of a bubble.
"We also do not see much chance that growth will disappoint since traffic demand is being generated by strong end-user demand for Internet video that does not appear likely to go away," he wrote.
Ciena, he added, has also proven itself competitively -- the company has been gaining market share and "has been winning more than its share of the larger capacity expansion products." |
