Why a Major Breakout Is on the Horizon for Ciena Stock

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Ciena Stock on the Verge of Breaking Higher

Networking stocks continue to have strong tailwinds for superior growth on the horizon. A mid-cap networking solutions company that is showing some strong technical signs of staging a major breakout is Ciena Corporation (NYSE:CIEN).

This company is operating in a sweet spot in technology growth. Ciena produces networking solutions that help supercharge the Internet and communications areas.

You only have to think about the superlative growth in the Internet and networking segments to understand why the catalyst for share appreciation is high for CIEN stock.

But prior to examining the underlying fundamentals for the company, let me show you why Ciena stock could be setting up for a breakout on the chart.

The first thing you will notice on the Ciena stock chart is the bullish rounding bottom that incorporates a bullish golden cross and an upside trade gap.

Chart courtesy of StockCharts.com

The two indicators generally point to sustained gains on the horizon.

An immediate price target for CIEN stock is $30.00, followed by a move toward the $35.00 level from 2008.

Chart courtesy of StockCharts.com

CIEN Stock Is Supported by Bullish Fundamentals

Revenues have risen in four consecutive years, and the growth is expected to continue at 5.2% and 5.7% for fiscal 2018 and fiscal 2019 (ending in October), respectively. (Source: “Ciena Corporation (CIEN),” Yahoo! Finance, last accessed April 27, 2018.)

Ciena Corporation Revenues ($ Billions)

FY13 $2.08
FY14 $2.29
FY15 $2.44
FY16 $2.60
FY17 $2.80
FY18 $2.95 (Estimate)
FY19 $3.12 (Estimate)

While the revenue growth rate for Ciena stock could be better, I’m encouraged by the fact that gross margins are edging higher and earnings estimates are rising.

Ciena Corporation Gross Margins

FY15

43%

FY16

44%

FY17

48%

Earnings have followed revenues higher, but are estimated to fall this year, prior to rebounding to as high as $2.07 per diluted share in 2019.

 

The high earnings per share (EPS) estimate gives CIEN stock an attractive forward multiple of about 12.6 times. This is a discount, compared to the S&P 500 and the networking applications group.

 

Analyst Take

The bullish stock chart suggests that an upside move is on the horizon.

Add in the fact that Ciena stock is attracting good insider buying and you sense that things are getting better.