Ciena (CIEN) Q3 Earnings: What's In The Cards This Time?

Ciena Corporation (NYSE:CIEN) is set to report third-quarter fiscal 2016 results on Sep 1. Last quarter, the company delivered a positive earnings surprise of 20.0%. The company delivered positive earnings surprises in three out of the last four fiscal quarters, bringing the average to a positive earnings surprise of 9.47%. Let’s see how things are shaping up for this announcement.

Factors to Consider

Ciena continues to benefit from strong demand for packet-optical transport and switching products, integrated network, and service management software. Higher spending on optical upgrade and a higher number of orders from international customers will likely boost its top line. Additionally, growing demand for cloud-based on-demand networking capabilities is also likely to bode well. Mobile bandwidth consumption is expected to rise phenomenally, thereby providing more growth opportunities to the company.

Currently, the company is one of the leading suppliers of 40G and 100G optical transport technology. In addition, the company is making efforts to expand its web scale IT architecture in the enterprise market by launching products like new chipsets, metro architecture and mobile backhaul solutions. We believe that Ciena’s strong product portfolio will boost its top line over the long run.

Ciena remains positive about its North America business where it expects revenues to grow in double digits in the second half of the current fiscal excluding contribution from AT&T (NYSE:T).

In spite of all these encouraging factors, Ciena’s profitability can be affected by its leveraged balance sheet. Moreover, stiff competition from the company’s peers like Cisco (NASDAQ:CSCO) and Juniper Networks (NYSE:JNPR) among others remains a concern. Uncertain macroeconomic environment also remains an overhang.

Ciena expects third-quarter fiscal 2016 revenues in the range of $655 million to $685 million.

Earnings Whispers

Our proven model does not conclusively show that Ciena will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Ciena has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 31 cents.

Zacks Rank: Ciena’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a stock that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Hewlett Packard Enterprise Company (NYSE:HPE) has an Earnings ESP of +2.27% and a Zacks Rank #3.