Citi Upgrades Ciena, Shares Increase in Pre-Market Trade

Shares of Ciena Corporation experienced an upward trend in pre-market trading on Monday following an upgrade from Citi analysts, who changed their rating from “sell” to “buy” and raised the price target from $44 to $68.

This upgrade reflects Citi’s increasing optimism about Ciena’s improving fundamentals and a more favorable growth outlook for 2025. Analysts noted that the lingering effects of excess inventory and weak demand in the telecommunications and cable industries, which had previously hampered Ciena’s performance, are beginning to ease.

Citi anticipates a return to mid-to-high single-digit growth for the company in fiscal year 2025, as the overhang from past challenges dissipates. Despite Ciena’s recent struggles compared to competitors like Arista Networks and Coherent Corp, which have significantly outperformed it year-to-date, Citi believes a shift is underway.

The analysts expect an influx of investor interest in the networking equipment sector in the next six months, particularly as the long-standing rally in semiconductors and hardware begins to wane. A critical factor behind Citi’s renewed confidence is the gradual recovery in bookings from North American telecommunications and cable providers, which constitute approximately 50-60% of Ciena’s sales.

Citi has noted a positive shift in consensus capital expenditure expectations for North American telecom operators, moving from a projected 3% decline in fiscal 2024 to an anticipated 3% growth for 2025. This suggests healthier spending patterns from service providers, which should benefit Ciena’s revenue.

Alongside the recovery in the telecommunications sector, Ciena is also gaining momentum in cloud service provider bookings. This growth, particularly evident in fiscal year 2024, has helped mitigate weaknesses in the telecom sector and positions Ciena well for web-scale sales growth as it approaches 2025.

While opportunities in artificial intelligence are expected to materialize further down the line, Citi remains hopeful about long-term benefits arising from increased data traffic driven by AI applications.

Citi has also adjusted its earnings predictions for Ciena, raising the earnings per share (EPS) forecast by 5% for fiscal 2025 and 10% for fiscal 2026. These changes, along with improved business visibility, have prompted Citi to adjust its valuation multiple on Ciena from 16x to 19x forward price-to-earnings (P/E), supporting the updated price target of $68. This revised target represents a premium compared to Ciena’s three-year median P/E ratio, reflecting the company’s enhancing fundamentals and clearer growth opportunities.

However, analysts did express caution, highlighting potential risks. A slower recovery in telecom and cable spending, along with possible losses in the Metro and Data Center Interconnect optical markets, could pose challenges for Ciena in fully leveraging the improving market dynamics.

Ciena’s shares gained 3.4% during pre-market trading on Monday.