Ciena’s Hold Rating: Balancing Demand Growth with Profitability Challenges and High Valuation

Morgan Stanley analyst Meta Marshall maintained a Hold rating on Ciena (CIEN – Research Report) yesterday and set a price target of $73.00.

Meta Marshall has given his Hold rating due to a combination of factors impacting Ciena’s financial outlook. While there is a notable increase in demand, particularly in the cloud sector with an 85% year-over-year growth, the profitability has not kept pace with the revenue growth. The recent quarter showed a top-line beat, but this was overshadowed by a significant margin miss due to the strength of lower-margin businesses like pluggables and RLS systems.
Despite a more than 10% decline in stock price after the earnings report, the valuation remains high at approximately 22 times the projected FY26 earnings per share. This high valuation leaves little room for multiple expansion. The potential for improved margins in pluggables, particularly with the 800ZR, could lead to a more positive outlook, but for now, the expectations for earnings per share growth are muted, justifying the Hold rating.

In another report released yesterday, Rosenblatt Securities also maintained a Hold rating on the stock with a $78.00 price target.

CIEN’s price has also changed slightly for the past six months – from $72.230 to $73.050, which is a 1.14% increase.