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A Morgan Stanley analyst upgraded shares of Ciena (NYSE:CIEN) to Overweight from Equal-Weight, raising the firm’s price target on the stock to $65 from $54 per share in a note to clients Friday.
The analyst explained in the note that they believe Ciena sets up well over the coming quarters due to a strong service provider and cloud spending environment, alongside “seemingly bottoming conditions on supply chain.”
“Our reservation on being OW CIEN earlier this year was largely valuation based, as ~25x P/E valuation entering this year was too optimistic on optical valuations, particularly given ongoing supply chain challenges. However, as supply chain situations seem to hit bottom in Q2 and look to sequentially improve over 2H, we think the next year presents an opportunity for meaningful growth and re-rating for CIEN,” wrote the analyst.
Ciena shares have gained over 3% in early Friday trading but are down 31% in 2022.
“While we are cautious about cloud capex growth as we head further into 2023, we think there are enough near term catalysts to get CIEN to our price target (in a space that largely trades on N6M news vs. LT). These are namely seeing relief in supply chain overhead that allows them to achieve FQ4 and FY23 street outlooks and gradual reduction in supply chain costs. We could be too optimistic if challenges in achieving FQ4 outlook reduces investor confidence in the name, particularly after two quarters of outlook disappointment,” the analyst added.
