Event: CIEN reports fiscal Q2 earnings tomorrow morning before the open. The options market is implying ~10.5% move which is a tad shy of the 4 qtr avg move of ~13%.
Sentiment: Wall Street analysts are fairly bullish on the stock with 18 Buys, 7 Holds and only 2 Sells with an avg 12 month price target of ~$20. Short interest sits at ~18% of the float, down a couple % in the last few months. The top 5 shareholders own about 36% of the shares outstanding.
Options Open Interest: Calls almost out weigh puts by a measure of 2 to 1 with 67k to 36k with the largest single lines of open interest: 9k of the Jun 16 calls, 6500 of the June 14 puts, 6k of the June 17 calls & 4700 of the Jan 15 calls.
Price Action / Technicals: the stock has fairly dramatically under-performed the Nasdaq and many of its peers up only 4% ytd despite the 17% gap higher in early March on better than expected Q1 results (circled below).
The one year chart below shows the stock just recently bumped up against fairly strong resistance at $17, the level the stocked gapped to in March but couldn’t hold, and what appears to be strong support at ~$15 which coincides with its 200 day moving avg.[caption id="attachment_26647" align="aligncenter" width="589"] CIEN 1yr chart from Bloomberg[/caption]
Volatility: Vol is ramping into the event but simply average as far as earnings events go. June vol is 65 and July 50. Expect IV to fall to about to the mid 30’s following the report. Here’s IV30 vs HV30 from the past year:[caption id="attachment_26651" align="aligncenter" width="560"] from LiveVol Pro[/caption]
MY VIEW: CIEN gets a bit more than 50% of their sales from the U.S. and is heavily levered to telecom capital expenditure budgets that have been constrained in some parts of the world. Last quarters beat on earnings was largely due to lower than expected operating expenses.
On a valuation basis the stock is cheap on a price to sales metric trading near 10 year lows, as sales are expected to grow 8-10% over the next couple years. Earnings are a bit tougher to value as the stock is expected to get back to break-even in 2013.
The company has a very clean balance sheet with ~38% of their $1.65B market cap in cash and no debt.
Given the stocks recent 15% rally off of the May lows, a bit of any good news could be in the stock. That said with the high short interest, a second consecutive beat and raise could cause a re-test og the 2013 highs near $18.
We are looking at potential trades.