Chart of the Day – CIEN Into Earnings

by Dan June 3, 2015 3:18 pm • Chart of the Day• Commentary

Ciena Corp (CIEN) report fiscal Q2 results tomorrow morning before to the open. The options market is implying about a 7% one day move, which is shy to the 4 qtr avg one day move of almost 9%.

Shares of CIEN are up 26% year to date, having recently broken out to new 52 week highs, up more than 10% in the last month, aided by some chatter than Ericsson is trolling for a networking acquisition in the U.S.:

CIEN 1yr chart from Bloomberg
CIEN 1yr chart from Bloomberg

Earnings are expected to have a massive ramp in 2015 on a modest mid single digits sales increase, but screens as very cheap at about 1x price to sales vs JNPR at 2.4x sales.  

Surprisingly analyst sentiment is quite positive on CIEN with 18 Buy ratings, 5 Holds and 2 Sells with a 12 month avg price target of $26.50, less than 10% above current trading levels. Short interest has been declining in 2015 with the stock’s strong performance but still sits at about 15% of the float.

Its my sense that it would take a meaningful beat and raise for the stock to rise from here, without any additional chatter on the m&a front. That said, a miss and guide lower would likely see the shares re-test the breakout level just above $22.

I have no axe in this stock, and the reason I looked at it to begin with was a large options trade in the stock a bit ago where a trader sold to open 5500 of the June 22.50 / 24.50 strangle at 1.20 when the stock was $24.50 (sold June 22.50 put at .24 and sold the June 24.50 call at .96).  If this was a yield enhancement trade against long stock then the trader would collect the $1.20, or $660,000 if the stock is below 24.50 and above 22.50. Either way the trader has created a buffer down $1.20 from current levels, and would be called away at $24.50 at current levels.  This is a fairly tight strangle and mildly leans lower. But they must also be comfortable with adding to their position at 21.30 if the stock were to get hit on earnings.