Ciena (CIEN) is scheduled to report their third quarter 2009 results before the market opens on Tuesday, September 3rd. Based on our analysis, we at EarningsPreviews.com are expecting CIEN to report better than expected results that exceed Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $154.0 million and EPS of ($.12). This would represent a 39% decline in revenues from last year’s $253.2 million in the same period. The current analyst consensus estimates calls for revenues of $152.6 million and EPS of ($.13).

Ciena’s shares have gained 19% in August as optimism continues to build ahead of next week’s earnings release. We agree with the consensus opinion that last quarter was likely the low point for Ciena. However, our third quarter expectations are slightly above the Street’s consensus as we believe improving customer demand will lead to a sequential improvement over last quarter’s results.

It appears that Ciena’s management has been intentionally cautious about the outlook for the remainder of the year due to limited visibility. We would expect that visibility to improve as customer orders begin to increase and would anticipate a more optimistic tone on this quarter’s earnings call.

Stock Performance

Since the beginning of 2009, Ciena’s shares have gained an amazing 95% and have significantly outperformed the 8% gain in the Dow Jones industrial average. However last year, CIEN’s stock fell 80% and badly underperformed even the 34% drop in the Dow Jones industrial average.

Valuation

Shares are now trading at 145x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. While it’s difficult to claim that Ciena is undervalued based on their current earnings multiple, we would expect the stock to see further appreciation based on a positive market reaction to an earnings beat. 

Recommendation: Buy with a $14 price target.