Ciena's AI Growth Is Just Starting: Analyst

Core Viewpoint - Ciena Corp reported strong fourth-quarter results and provided optimistic guidance for 2026, despite a decline in stock price following analyst upgrades to price forecasts [1][8]. Financial Performance - Fourth-quarter revenue increased by 20% year-over-year and 11% sequentially, reaching $1.35 billion, which was approximately $70 million (5%) above analyst estimates [2]. - Gross margins improved to 43.4%, up 150 basis points quarter-over-quarter and 80 basis points above the firm's model [2]. - Adjusted EPS for the quarter was $0.91, exceeding the estimate of $0.74 by 28% [2]. Annual Results - For the full fiscal year, Ciena achieved $4.77 billion in revenue and $7.8 billion in orders, ending fiscal 2025 with a backlog of roughly $5 billion compared to $2.1 billion the previous year [3]. Guidance and Expectations - Ciena projected first-quarter 2026 revenue to be around $1.39 billion, representing a sequential increase and approximately 30% year-over-year growth, which is $140 million (11%) above consensus [4]. - The company raised its fiscal 2026 revenue growth guidance to a range of 20%–28%, surpassing previous expectations [4]. Margin Outlook - Ciena indicated first-quarter gross margins near 43.5% but anticipated a dip in Q2 2026 due to increased 800ZR revenue for scale-across work, with expectations for margin improvement in the second half of 2026 [5]. - The fiscal 2026 operating margin target was lifted to 17% from 16%, supported by revenue growth and stable operating expenses year-over-year [5]. Earnings Projections - The analyst raised the fiscal 2026 EPS forecast to $5.25 from $4.25 and introduced a fiscal 2027 EPS estimate of $6.78, noting that these figures are conservative [6]. - Upside scenarios with over 30% revenue growth and low-20s operating margins could potentially increase earnings by $10–$12 [6]. Market Position - Ciena is expected to capture nearly 100% of line systems for scale-across in fiscal 2026, leveraging its unique Hyper Rail/Multi Rail technology, and is anticipated to dominate the 800ZR pluggable market [7]. - Initial scale-across deployments began in Q4 2025, with estimates of numerous projects in fiscal 2026, each contributing high tens of millions to low hundreds of millions in revenue [8].