Ciena Corporation (CIEN)’s Looking Much Better

Likewise, there was a 6.3% improvement in operating margin, which also advanced 3.5% sequentially, helped by operating efficiencies that management has discussed in prior quarters. That contributed to lower-than-expected operating expenses, which arrived at $177 million.

What of the competition?
It’s great to have solid management team steering the ship, but so does Cisco Systems, Inc. (NASDAQ:CSCO), which is in the midst of a significant turnaround of its own. Granted, these two are not often considered direct competitors per se, but Cisco is also waiting to pounce on any sign of recovery in carrier spending. Although Cisco has begun to (somewhat) phase out its hardware businesses in favor of software, Cisco’s switches still dominate network enterprises.

Besides, Cisco’s not just going to surrender that business. And if Cisco has a change of heart, Ciena Corporation (NASDAQ:CIEN) can begin to see some margin pressure. That said, Ciena should continue to outperform Juniper, which seems to have lost some of its fight after rumors surfaced that it tried unsuccessfully to sell off some assets — presumably to Cisco. But Juniper just reported a 9% increase in service provider revenue, so all may not be lost since it just may have signaled that carriers are becoming more optimistic.

What of the stock?
I’m having a hard time with the valuation at current levels. It’s great for Ciena’s shareholders that the Street loved the earnings report. But a 20% jump in a week is a bit overzealous. And it indicates that perhaps the Street has already priced in a full recovery. I don’t think investors can know the extent of a recovery for at least a couple more quarters. But so long as Ciena Corporation (NASDAQ:CIEN)’s margins continue to improve, the risk is palatable.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems (NASDAQ:CSCO).

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