The demand for networking solutions—such as high-speed Ethernet switches and routers—grew considerably with the advent of the COVID-19 pandemic because of remote lifestyles' increased dependence on virtual connectivity. Furthermore, with the rapid spread of the highly contagious Delta variant, the demand for networking solutions could continue to rise.

The infrastructure bill passed by the Senate earlier this month includes a $65 billion investment to improve the nation's broadband infrastructure. And the networking industry could continue to witness increasing demand with the growing adoption of 5G and cloud-based devices. According to Statista, the global network management systems market is expected to grow to $12.2 billion in 2027 from $6.7 billion in 2020.

Given this backdrop, we think it could be wise to bet on fundamentally strong networking stocks Ciena Corporation (CIEN), Lumentum Holdings Inc. (LITE), Extreme Networks, Inc. (EXTR), and A10 Networks, Inc. (ATEN).

Ciena Corporation (CIEN)

CIEN is a network strategy and technology company that operates across more than 35 countries. The Hanover, Md.-based company provides equipment, software, and services that help support the transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks.

On July 7, 2021, Lumea and CIEN announced a partnership to offer  innovative services to customers with 100G+ superspeed Wavelength programs. CIEN’s Managing Director of Australia and New Zealand, Matt Vesperman, said, “Lumea is a prime example of how improved connectivity enables a smarter and more connected society. With Ciena, Lumea adapts and scales to deliver new levels of performance while transitioning to a more sustainable network.”

CIEN’s revenue increased 10.1% sequentially to $833.93 million in the second quarter, ended May 1, 2021. While its net income increased 12.5% year-over-year to $103.12 million, its EPS came in at $0.66, up 11.9% year-over-year. Also, its EBITDA was  $166.61 million, up 4.3% year-over-year.

Analysts expect CIEN’s revenue and EPS to increase 26.7% and 58.3%, respectively, year-over-year to $1.05 billion and $0.95 for the quarter ending October 31, 2021. In addition, it has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 28.1% in price to close yesterday’s trading session at $56.75.

CIEN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CIEN has a B grade for Value. Within the Technology-Communication/Networking industry, it is ranked #21 of 56 stocks. Click here to see the additional POWR Ratings for Growth, Stability, Sentiment, Quality, and Momentum for CIEN.

Lumentum Holdings Inc. (LITE)

A market-leading manufacturer of innovative optical and photonic products enabling optical networking, LITE in Milpitas, Calif., operates in two segments, namely Optical Communications and Commercial Lasers. The company serves customers in telecommunications, data communications, consumer, and industrial markets.

In collaboration with Ambarella, Inc. (AMBA), and ON Semiconductor Corporation (ON), LITE announced two joint reference designs that should accelerate AIoT device deployment across verticals in May 2021. The new designs are expected to expand LITE’s product portfolio in the biometric access control space.

For its fiscal fourth quarter, ended July 3, 2021, LITE’s net revenue increased 6.5% year-over-year to $392.10 million. The company’s income from operations increased 69.6% from the same period last year to $45.80 million. Its net income came in at $21.50 million, versus  a $4.60 million loss in the year-ago period. Also, its EPS came in at $0.28 compared to a $0.06 loss per share  in the prior year’s quarter.

LITE’s revenue is expected to come in at $1.73 billion in its fiscal year 2021, representing a 3.2% year-over-year rise. The company’s EPS is expected to increase 14.6% year-over-year to $6.21 in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 4.2% to close yesterday’s trading session at $86.91.

It’s no surprise that LITE has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Quality.

LITE is ranked #14 in the Technology-Communication/Networking  industry. Click here to see the additional POWR Ratings for LITE (Growth, Momentum, Value, Stability, and Sentiment).

Extreme Networks, Inc. (EXTR)

EXTR provides software-driven networking solutions for enterprise, data center, and service provider customers across the United States, Canada, EMEA, and APAC. The company’s product portfolio includes ExtremeAnalytics, ExtremeCloud, ExtremeRouting, and ExtremeWireless. EXTR is based in San Jose, Calif.

On August 24, 2021, EXTR announced that it had been chosen as the official Wi-Fi solutions provider for the historic Olympiastadion Berlin in Germany. EXTR is expected to deploy a high-performance Wi-Fi 6 network that meets the stringent venue and networking infrastructure requirements of the Union of European Football Associations' (UEFA). Its selection represents the increasing demand for the company’s solutions.

EXTR’s total revenue increased 29% year-over-year to $278.09 million for its fiscal fourth quarter, ended June 30, 2021. The company’s operating income came in at $17.57 million compared to a $13.10 million loss in the prior-year period. Its net income in the quarter came in at $10.33 million versus a $21.22 million loss in the year-ago period. Also, its EPS was  $0.08 compared to an $0.18  per share loss in the prior year’s quarter.

For its fiscal year 2022, analysts expect EXTR’s revenue to be $1.08 billion, representing a 7.4% year-over-year rise. The company’s EPS is expected to increase 31.6% year-over-year to $0.75 in its fiscal year 2022. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 88.9% in price to close yesterday’s trading session at $10.86.

EXTR’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Growth and Value, and a B grade for Quality.

Click here to see EXTR’s ratings for Momentum, Stability, and Sentiment as well. Again, EXTR is ranked #2 in the Technology-Communication/Networking industry.

A10 Networks, Inc. (ATEN)

Networking solutions provider ATEN serves cloud providers, government organizations, and enterprises in the telecommunications, technology, financial, and gaming industries. Its portfolio consists of six application delivery and security products, including Thunder Application Delivery Controller (ADC), Lightning ADC, and Thunder Threat Protection System (TPS). ATEN is headquartered in San Jose, Calif.

ATEN’s president and CEO, Dhrupad Trivedi, said on July 27, 2021, “We gained market share, adding new customers and expanding our security-led sales with existing customers. As expected, Japan again grew year-over-year during the quarter. Our customer engagements, strength of funnel and improving execution reinforce our confidence in full-year growth targets while building a diversified customer base for the future.”

ATEN’s total revenues increased 12.7% year-over-year to $59.17 million in the second quarter, ended June 30, 2021. Its non-GAAP net income increased 47.4% year-over-year to $10.52 million, while its non-GAAP EPS came in at $0.13, representing a 44.4% year-over-year rise. Also,  its adjusted EBITDA increased 35.1% year-over-year to $13.20 million.

For its fiscal year 2021, ATEN’s revenue and EPS are expected to grow 7.9% and 22.7%, respectively, year-over-year to $243.25 million and $0.54. It surpassed the consensus EPS estimates in each  of the trailing four quarters. Over the past nine months, the stock has gained 67.5% to close yesterday’s trading session at $13.62

ATEN’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.

In addition, it has an A grade for Quality. ATEN is ranked #7 in the Technology-Communication/Networking industry. Click here to see the additional POWR Ratings for ATEN (Growth, Value, Stability, Sentiment, and Momentum).

CIEN shares were trading at $56.61 per share on Thursday morning, down $0.14 (-0.25%). Year-to-date, CIEN has gained 7.11%, versus a 20.41% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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