Ciena vs. CommScope: Which Fiber Optics Stock is a Better Buy?

Ciena Corporation (CIEN) provides network hardware, software, and services that support transport, routing, switching, aggregation, service delivery, and managing video, data, and voice traffic worldwide. It operates through four segments: Networking Platforms; Blue Planet Automation Software and Services; Platform Software and Service; and Global Services. On the other hand, CommScope Holding Company, Inc. (COMM) provides infrastructure solutions for communications and entertainment networks. It operates through four segments: Broadband Networks; Home Networks; Outdoor Wireless Networks; and Venue and Campus Networks.

With the remote working culture becoming a new norm, the demand for reliable internet connection and high internet bandwidth from businesses and individuals have increased significantly, driving the need for fiber optics network infrastructure. Moreover, with the resurgence of omicron coronavirus cases and companies increasingly adopting technology-based solutions, the demand is expected to rise. Also, the $1 trillion infrastructure bill is expected to boost the fiber optics industry's growth in the upcoming years. According to Valuates Reports, the fiber optics market is expected to grow at a CAGR of 7.8% between 2021 and 2026. Therefore, both CIEN and COMM should benefit.

CIEN has gained 21.2% over the past month, while COMM has returned 20.4%. Also, CIEN’s 36.1% gains over the past three months are significantly higher than COMM’s negative returns. Moreover, CIEN is the clear winner with 59.1% gains versus COMM’s negative returns in terms of the past year’s performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On October 27, 2021, CIEN and Samsung Electronics Co., Ltd. have agreed to deliver 5G network solutions to the market. Matt Cook, Vice President, Global Partner Organization, Ciena, said, "As both companies are leading innovators in our respective spaces with strong customer bases for these portfolios, this powerful collaboration leverages our collective leadership to create best-in-breed 5G networks that are open, scalable and adaptive."

On December 10, 2021, COMM has announced that its upcoming RDK-based VIP73xx streaming solutions will be included in Netflix’s new DaVinci scaling partner program. This could lead to increasing demand for its product in the forthcoming months.

Recent Financial Results

CIEN’s revenue increased 25.7% year-over-year to $1.04 billion for the fiscal fourth quarter ended October 30, 2021. The company’s adjusted EBITDA grew 28.9% year-over-year to $199.20 million, while its adjusted net income came in at $132.70 million representing a 40.4% year-over-year increase. Also, its adjusted EPS came in at $0.85, up 41.7% year-over-year.

COMM’s net sales decreased 2.9% year-over-year to $2.11 billion for the fiscal third quarter ended September 30, 2021. The company’s adjusted EBITDA declined 24.2% year-over-year to $259.10 million, while its adjusted net income came in at $72.20 million representing a 41.3% year-over-year decrease. Also, its adjusted EPS came in at $0.29, down 43.1% year-over-year.

Past and Expected Financial Performance

CIEN’s revenue and EBITDA grew at CAGRs of 5.1% and 22.1%, respectively, over the past three years. Analysts expect CIEN’s revenue to increase 9.4% in the current year and 7.3% next year. The company’s EPS is expected to grow 7.9% in the current year and 15.6% next year. Moreover, its EPS is expected to grow at 7.8% per annum over the next five years.

On the other hand, COMM’s revenue and EBITDA grew at CAGRs of 22.4% and 5.2%, respectively, over the past three years. The company’s revenue is expected to decrease 0.1% in the current year but increase 3.3% next year. Its EPS is expected to decline 19.2% in the current year but grow 22.2% next year. Also, COMM’s EPS is expected to grow at 10.1% per annum over the next five years.

Profitability

COMM’s trailing-12-month revenue is 2.49 times what CIEN generates. However, CIEN is more profitable with a gross profit margin and EBIT margin of 48.19% and 13.08% compared to COMM’s 31.94% and 3.61%, respectively.

Furthermore, CIEN’s ROA and ROTC of 6.40% and 7.91% are higher than COMM’s 1.42% and 1.76%, respectively.

Valuation

In terms of forward non-GAAP P/E, CIEN is currently trading at 23.48x, 161.5% higher than COMM’s 8.98x. Moreover, CIEN’s forward non-GAAP PEG ratio of 1.35x is 98.5% higher than COMM’s 4.24x.

So, COMM is relatively affordable here.

POWR Ratings

Both CIEN and COMM have an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both CIEN and COMM have a grade of C for Momentum and Stability.

Of the 55 stocks in the B-rated Technology - Communication/Networking industry, CIEN is ranked #21. In comparison, COMM is ranked #45.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Value, Quality, and Sentiment. Click here to view all the CIEN ratings. Also, get all the COMM ratings here.

The Winner

The fiber optics industry is expected to grow exponentially with the widespread implementation of 5G and the adoption of the internet of things. While both CIEN and COMM are expected to gain in the long run, using the POWR Ratings system, we believe neither stock is currently a buy and we recommend waiting for better entry points in these stocks.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Technology - Communication/Networking industry here.

CIEN shares were trading at $73.64 per share on Monday afternoon, up $0.29 (+0.40%). Year-to-date, CIEN has gained 39.34%, versus a 26.37% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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