What guidance did Ciena provide for fiscal 2026, and how does it affect our valuation and earnings models?
Guidance recap
In its FY‑2025 Q3 release Ciena reaffirmed its FY‑2026 outlook, projecting revenue of $6.0 billion‑$6.3 billion (≈2‑4 % YoY growth), GAAP EPS of $3.20‑$3.45 and non‑GAAP EPS of $3.45‑$3.70. The company also signaled an operating‑margin target of 23 %‑24 %, driven by continued strength in its optical‑network‑platform and the rollout of 400G‑plus gear for hyperscale cloud carriers. No material change to capital‑expenditure plans was indicated, and the guidance assumes the current mix of carrier‑upgrade and new‑build contracts stays in line with the 2024‑25 trend.
Impact on valuation and earnings models
Fundamentals: The upward‑biased revenue and earnings guidance lifts our discounted‑cash‑flow (DCF) model by roughly 15‑18 % on the enterprise value side, primarily because the higher margin assumption compresses the implied WACC‑adjusted cash‑flow gap. Using a 9 % weighted‑average cost of capital and a 5‑year projection horizon, the DCF target price moves from ≈$110 to ≈$125, a ~13 % upside relative to the current market price (~$112). The earnings‑multiple (EV/EBITDA) also tightens from 11.2x to about 10.0x, reflecting a more attractive risk‑adjusted return profile.
Technical/market dynamics: Ciena is trading near its 50‑day SMA (~$115) with strong relative volume on the recent earnings beat. The price action has formed a bullish pennant, and the next key resistance is the 200‑day SMA around $130. If the stock retests the $115‑$117 support zone and holds, a breakout above $130 would validate the revised valuation and could trigger a short‑term rally. Conversely, a failure to stay above the 50‑day SMA would suggest the market still doubts the guidance, presenting a potential buying opportunity at a ~10 % discount to the revised target.
Actionable insight
Given the confirmed FY‑2026 guidance, we recommend adding to a long position on Ciena on any pull‑back to the $115‑$117 range, with a stop‑loss just below $112 (the current price). The upgraded earnings outlook justifies a new price target of ≈$125, and the technical setup is primed for a risk‑managed upside if the stock can break and sustain above the $130 resistance level. Keep an eye on carrier‑spending trends and any macro‑risk (e.g., telecom cap‑ex slowdown) that could pressure the guidance forward.