Wednesday, October 11, 2006

Calls of Note Part 1

- Goldman Sachs notes Ciena's (NASDAQ:CIEND) analyst day did not remove the bearish perception that business will slow over the next 12 months. The firm disagrees and sees lowered expectations creating a buying opportunity.

Firm believes 27% top-line growth is very achievable in FY07, vs. consensus of 22%. 1) While not willing to offer FY07 sales guidance, the CEO in Q&A said - and the firm reconfirmed this - that FY06 sales growth should NOT be the peak growth rate for Ciena, implying that the FY07 sales growth rate could exceed FY06's 30%+ rate. 2) Management stressed the point that Ciena has the potential to unlock strong operating leverage. In FY06 sales are tracking for 32% growth, and operating expense are down 10% yr/yr. There is more leverage to go. 3) Big picture, there is a disconnect in the market if YouTube is getting taken out at $1.6 bn because video will be big and Target and Wal-Mart are talking with media companies about risk to DVD sales due to the threat of internet distribution and Ciena, a main bandwidth vendor, is seeing investor concern that it may see slower growth a year from now.

Maintains Buy and $42 tgt.

Notablecalls: Note that Goldman was out positive on CIEND Oct 5 calling for a very positive analyst day. That didn't materialize and the stock got hit. Goldman continues to pound the table and I suspect that will create a moderate bounce.

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