Nokia Corporation (NOK) and Ciena Corporation (CIEN) are two prominent players in the networking industry. Headquartered in Finland, NOK provides mobile and fixed network solutions worldwide. It operates through three segments: Ultra Broadband Networks; IP Networks and Applications; and Nokia Technologies. CIEN provides network hardware, software, and support services to its clients around the globe. The company's networking platforms segment offers hardware networking products and solutions.
Thanks to the continuing advancements in technologies such as 5G, internet of things (IoT) and artificial intelligence (AI), among others, the demand for networking solutions is expected to continue growing. Indeed, the data center networking industry is expected to grow at an approximate 15% CAGR between 2021 - 2027, according to a report by Global Market Insights. And, according to Markets and Markets, the global Network as a Service (NaaS) market size is expected to grow from $10.4 billion in 2021 to $37.5 billion by 2026, at a CAGR of 29.4%. Consequently, both NOK and CIEN should continue to see increasing demand for their solutions.
While NOK has gained 38.6% year-to-date, CIEN has returned 9.2%. Furthermore, in terms of their past six months’ performance, NOK is a clear winner with 34.2% returns versus CIEN’s 12.2%. But which of these two stocks is a better pick now? Let's find out.
Latest Movements
On June 20, NOK announced the availability of its new, industry-first MFA (MulteFire Alliance) certified 4.9G/LTE private wireless networking solution. Designed to open private wireless for mass adoption by a new community of customers, applications and markets worldwide, the Nokia Industrial MulteFire router 700 user equipment’s (UE) deployment enables use without access to a licensed spectrum. This should help NOK expand its market reach.
On July 7, Lumea and CIE announced their collaboration to transform Lumea’s telecommunications services and offer customers high-speed 100G+ Wavelength services. The upgrade enables connectivity to regional areas that can support bandwidth-intensive applications used for medical imaging, telehealth and remote surgery support, as well as high-definition telepresence and real-time data backup.
Recent Financial Results
NOK’s revenue for the first quarter ended March 31, 2021, came in at EUR 5.08 billion ($6.01 billion), up 3.3% from the prior-year quarter. Its gross profit increased 10.9% year-over-year to EUR 1.93 billion ($2.28 billion). The company’s profit for the period was EUR 263 million ($311.52 million) compared to a EUR 115 million ($136.22 million) loss in the year-ago period. Its EPS for the quarter was EUR 0.05 versus a EUR 0.02 to loss per share in the prior-year period.
For the second quarter ended May 1, 2021, CIEN’s net revenues were $833.93 million, representing a 6.7% decrease from the prior-year quarter. The company’s adjusted EBITDA for the quarter was $156.21 million, down 14.6% versus the prior-year quarter. Its non-GAAP net income declined 16.9% year-over-year to $97.61 million. Its non-GAAP net income per share came in at $0.62, down 18.4% from the prior-year quarter.
Past and Expected Financial Performance
NOK’s revenue grew at a 7.9% CAGR over the past five years and its EBIT grew at a 18.6% CAGR over the past three years. NOK’s annual revenue is expected to increase 3.5% for the current year and 2% next year. The company’s EPS is expected to decline 5.1% in the current year and then increase 10.6% next year. Also, its EPS is expected to grow at a 16.5% rate per annum over the next five years.
CIEN’s revenue grew at a 6.3% CAGR over the past five years and its EBIT grew at a 364% CAGR over the past three years. Analysts expect CIEN’s annual revenue to increase 2.1% for the current year and 8.5% in next year. Its EPS is expected to decline 2.4% for the current year and then increase 11.8% next year. Also, CIEN’s EPS is expected to grow at a rate of 9.9% per annum over the next five years.
Profitability
NOK’s $25.81 trailing-12-month revenue is 7.6 times CIEN’s $3.40 billion. However, CIEN is more profitable, with a 48.1% gross profit margin versus NOK’s 39.7%.
CIEN’s 9.6% and 7.7% respectively ROTC and ROA compare favorably with NOK’s 6.3% and 3.5%.
Valuation
In terms of forward EV/S, CIEN is currently trading at 2.32x, which is 116.8% higher than NOK’s 1.07x. In terms of forward EV/EBITDA also, , CIEN’s 11.99x is 45.2% higher than NOK’s 8.26x.
So, NOK is the more affordable stock.
POWR Ratings
NOK has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. Whereas CIEN has an C overall rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Growth, CIEN has been graded D, which is in sync with an expected decline in EPS for the current year. However, NOK’s A grade for Growth reflects its higher-than-industry growth values. NOK generated 36% year-over-year growth in EBIT, which is 104.2% higher than the 17.6% industry average. NOK also has an A grade for Sentiment, in sync with favorable analyst sentiment. The company’s EPS is expected to grow at 16.5% rate per annum over the next five years. In comparison, CIEN has a C grade for Sentiment, which reflects its relatively lower analyst sentiment.
Of the 55 stocks in the B-rated Technology-Communication/Networking industry, NOK is ranked #9 and CIEN is ranked #22.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve rated both NOK and CIEN for Momentum, Stability, Value, and Quality. Click here to see the additional ratings for NOK. Also, get all CIEN’s ratings here.
The Winner
Both NOK and CIEN are well-positioned to benefit from the increasing demand for networking solutions. However, NOK seems to be the better buy here based on its lower valuation and better financials.
Our research shows that the odds of success increase if one bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about top-rated stocks in the Technology-Communication/Networking industry.
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NOK shares were trading at $5.40 per share on Wednesday afternoon, down $0.02 (-0.37%). Year-to-date, NOK has gained 38.11%, versus a 17.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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