Consumer Positions

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CIEN specializes in high capacity data and communications network equipment. Their customers are a mix of telecom service providers, cloud datacenter operators, and traditional enterprises. That world is evolving quickly as AI related computing workloads are driving triple digit growth in certain parts of the ecosystem. CIEN is working through an inventory correction at its large telco customers at the same time workloads are moving towards direct cloud services. This telco customer dynamic has held back Ciena’s operating performance for years while under the surface, their mix towards cloud has been improving. Our analyst, Samantha Hughes, believes this dynamic will resolve itself in the next 3-6 months before current AI infrastructure spending drives a significant datacenter networking cycle over the next 3 years.
 

Her numbers call for ongoing risk to revenues in the current fiscal year ending in October and then significant upside to the FY25 and FY26 years thereafter. This gets to ~$6B in total sales in FY27 and ~$6.25 in adjusted EPS versus consensus estimates closer to $5B and ~$4 of EPS. There aren’t many “undiscovered” AI and edge computing plays left in the market so we are willing to be patient while CIEN completes its transition from telco customers towards direct cloud. Her interim price target is $66 as she hands off coverage before moving on to our consumer team this Fall but there are scenarios where CIEN could trade for $80-90 in the next few years.  

Tatiana’s other big idea is a company almost everyone (even our kids) has heard of, Caterpillar Tractor. CAT is a globally recognized brand but a controversial stock as investors debate its cyclicality within several volatile end markets. CAT is the global market share leader of the construction equipment market at 16.3% and has been a reasonably good business over the last decade.
 

The bear case we often hear on CAT is that the $21/shr of EPS earned in 2023 represents some type of unsustainable level.  Tatiana views a combination of construction industry incentives across tech, energy, and other government programs as providing multi-year tailwinds to volume. This combined with investments in technology and automation will facilitate market share gains and a shorter replacement cycle. Any benefit from lower interest rates would only help the story.
 

Her estimates for 2025 and 2026 are nearly 10% above consensus sales estimates and 2026 EPS of ~$30 are over 20% above. The price target on CAT is $422 based on a mid teens P/E on 2025 EPS.  

 Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.