By Senad Karaahmetovic
Shares of Ciena (NYSE:) are down about 2.5% in premarket Tuesday after a JPMorgan analyst downgraded to Neutral from Overweight with a $45.00 per share price target (down from $62.00).
CIEN shares fell about 13% in recent days in response to weak FQ3 . The downgrade move comes on the back of the “stretched targets for FY23, downside to consensus even on meeting stretched targets, and valuation multiple on FY23 estimates already close to longterm valuation multiples for the stock,” the analyst wrote to clients in a note.
FY23 revenue target, in particular, seems “too stretched.” The analyst forecasts $4.1 billion in FY23 revenues, lower than the company’s outlook of $4.2 billion.
“Our view is [this is] a stretch target and requires either limited disruptions in the supply chain on a go-forward basis or demand moderation for the industry easing up supply.”
Moreover, the analyst sees a peaking backlog in FY23.
“Investor bullishness is based on backlog which is likely going to increase for another few quarters till quarterly revenue run-rates reach around $1bn with improvement in supply. However, with service provider capex already peaking in FY22, we expect backlog with supply improvement and bullishness around demand trends to moderate in FY23,” he added.
Net-net, the JPMorgan analyst sees “more risk to the downside than upside over the medium term,” hence CIEN shares are downgraded to Neutral.