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In Focus: Ciena
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December 19, 2000: 1:13 p.m. ET
JP Morgan analyst Gregory Giling discusses Ciena's acquisition of Cyras
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NEW YORK (CNNfn) - Gregory Giling, telecom equipment analyst at JP Morgan, said Ciena's decision to buy Cyras for $2.6 billion was a sound move, despite the seemingly negative reaction within the stock market to the move.
"From a product perspective they're buying a great company, but because the acquisition is dilutive, the stock is down today," Giling explained. "Wall Street doesn't like dilutive transactions. But long term, it's a great move."
Giling's twelve-month price target for Linthicum, Md.-based Ciena is about $125.
Giling also likes companies like Cisco (CSCO: Research, Estimates), Nortel (NT: Research, Estimates) and Sycamore (SCMR: Research, Estimates). Read more of Giling's commentary below:
In Focus airs daily on CNNfn's network at 12:10 p.m. The following includes comments made both during the show and in the pre-show interview.
CNNfn: Ciena is acquiring Cyras for approximately $2.6 billion. Is that a fair price?
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We still like names that have exposure to high growth areas, like optics and IT, but are trading at reasonable valuation levels today. Stocks like Cisco, Nortel and Ciena.
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Gregory Giling
telecom equipment analyst
JP Morgan |
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Giling: If we looked at the market six months ago the price would have been higher. Valuations for companies being acquired in the space had been higher, but the market was stronger from a technology perspective. Given the current market conditions, it's a fair price.
CNNfn: Ciena said Cyras' family of products will help extend its reach from the core of service provider networks to metropolitan access and other large customer networks. What does that mean? What are the synergies?
Giling: Cyras' products help Ciena round out their portfolio. Ciena sells to two key markets: Firstly, they sell into the backbone market, where they have all the products they need, and secondly, in the metro markets their products were doing well but they needed another metro switching product, and Cyras addresses this need head on. When they go to customers now they can offer end-to-end solutions, not just individual point products.
CNNfn: Ciena recently reported fourth quarter earnings of $25.8 million, five times higher than the $4.5 million the company earned during the same period of 1999...
Giling: Yes, and on very strong revenue. Their business is doing very well.
CNNfn: CIENA (CIEN: Research, Estimates) expects the transaction to be dilutive to 2001 earnings but accretive to earnings in the second half of 2002. Do you agree with this?
Giling: Yes. I think that from a product perspective they're buying a great company, but because the acquisition is dilutive, the stock is down today. Wall Street doesn't like dilutive transactions. But long term, it's a great move.
CNNfn: Last March Ciena bought Lightera Networks and Omnia Communications -- how successful were those two transactions for Ciena?
Giling: Omnia was a related acquisition that didn't work out. Cyras was a way to replace the Omnia acquisition with a better product. Omnia was an interesting company but their product wasn't out yet and it didn't work out. Lightera was focused on the backbone market.
CNNfn: At around $86, CIEN is trading well below its 52-week high of $151. What's your outlook for the stock?
Giling: We've got a "buy" on the stock. Given the current weakness, it's a good opportunity to buy the stock. Ciena is one of the best ways to play the optical networking industry. Our 12-month price target for Ciena is about $125.
CNNfn: What's your outlook for the telecom equipment sector?
Giling: We think that the fundamentals in 2001 will be very strong because high growth areas like optical and IT will perform well next year, but given the current market conditions, we have to be valuation-sensitive.
We still like names that have exposure to high growth areas, like optics and IT, but are trading at reasonable valuation levels today. Stocks like Cisco (CSCO: Research, Estimates), Nortel (NT: Research, Estimates), and Ciena.
While we still like other names like Sycamore (SCMR: Research, Estimates), Corvis (CORV: Research, Estimates), and Sonus (SONS: Research, Estimates), they're still trading at big valuations versus historical levels, so people need to be cautious with those names.
-- reported by Carmina Perez 
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