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Investing.com - Morgan Stanley (NYSE:MS) downgraded Ciena (NYSE:CIEN) from Equalweight to Underweight on Tuesday, while lowering its price target to $70.00 from $73.00. According to InvestingPro data, the stock currently trades at a P/E ratio of 109.38x and an EV/EBITDA multiple of 33.93x, suggesting rich valuation levels.
The downgrade comes despite Ciena’s significant opportunities in the optical AI market, with Morgan Stanley citing disappointing margin performance as the primary concern. The firm noted that while Ciena’s fiscal 2026 revenue estimates have increased approximately 10% over the last three quarters, earnings per share estimates for the same period have actually declined by 4%. This aligns with InvestingPro data showing 14 analysts have revised their earnings downward, despite the company maintaining a gross profit margin of 41.94%.
Morgan Stanley explained that revenue growth has largely come from 400ZR pluggable customers, where margins fall below the company average. This trend has prevented meaningful earnings growth despite top-line expansion.
The investment bank expects Ciena to continue posting revenue upside in coming quarters given the scale of the AI opportunity. However, Morgan Stanley believes current Street estimates already factor in significant gross margin improvement of over 100 basis points for fiscal year 2026 versus fiscal year 2025, and more than 200 basis points from fiscal second quarter results.
Ciena currently trades at approximately seven times above its three-year average valuation, which Morgan Stanley views as creating a negatively skewed risk-reward profile despite the company’s participation in an approximately $15 billion addressable market.
In other recent news, Ciena Corporation announced the appointment of Marc D. Graff as its new Chief Financial Officer, effective August 1, 2025. Graff, who brings nearly 30 years of global finance experience, will replace James E. Moylan, Jr., who is set to retire later in August. This leadership change comes as Ciena faces increasing demand for high-speed connectivity driven by AI and cloud computing. Meanwhile, Ciena reported mixed fiscal second-quarter 2025 results, with revenue surpassing expectations at $1.13 billion, compared to the consensus estimate of $1.09 billion. However, adjusted earnings per share fell short at $0.42 against an expected $0.52, due to lower-than-anticipated gross and operating margins.
Analysts from Needham and Stifel have maintained their Buy ratings on Ciena stock, with price targets of $90.00, highlighting strong technology and customer relationships as positive factors. UBS analysts also raised their price target to $78 from $73, citing robust cloud revenue growth, despite concerns about margins. Ciena’s cloud segment showed significant year-over-year growth, contributing 38% to total revenue in the fiscal second quarter. The company also reported a record backlog and significant order wins, including a high-value contract with a tier-1 hyperscaler for a GPU cluster architecture deployment.
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