Last update on 2024-06-07

Ciena (CIEN) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Ciena (CIEN) achieved a Piotroski F-Score of 6/9 for 2023, reflecting a strong financial position with improvements in key metrics.

Short Analysis - Piotroski Score: 6

We're running Ciena (CIEN) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score measures the financial health of a company on a 0-9 scale. Ciena (CIEN) was analyzed using this model and scored a 6 out of 9. The company shows positive profitability indicated by net income and cash flow from operations. Additionally, it has a growing Return on Assets (ROA) and a healthy current ratio. However, Ciena's operating cash flow is lower than its net income, which raises some concerns about earnings quality. Also, the company has increased leverage and a slightly declining gross margin. On a positive note, Ciena's asset turnover ratio is growing, showing better revenue generation per asset, and it has reduced the number of outstanding shares, limiting shareholder dilution.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski score of 6, Ciena (CIEN) appears to be a relatively solid investment but comes with some caution flags. The company has demonstrated resilience and strength in profitability and liquidity but needs to address issues like increased leverage and declining gross margin. If you are looking for a company with decent financial health and growth potential, Ciena may be worth considering. However, it's crucial to conduct further research and consider industry trends before making any investment decisions.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Ciena (CIEN)

Company has a positive net income?

Net income measures the profitability of a company and is crucial for evaluating its financial health. Positive net income adds a point according to the Piotroski F-Score.

Ciena's net income for 2023 stands at $254.827 million, which is a positive figure. Over the past 20 years, Ciena has faced severe financial ups and downs, recording losses extending up to $789.464 million in 2004 and achieving a record profit of $1.261 billion in 2016. The positive net income for 2023 adds 1 point for this criterion in the Piotroski F-Score, reflecting a solid year in terms of profitability. This trend enhances the company’s financial evaluation.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is the cash inflow and outflow from regular business operations, and indicates financial health.

For Ciena (CIEN) in 2023, the CFO stands at 168,332,000, which is positive. Over the last 20 years, the CFO has fluctuated, at times being negative, but 2023 shows a strong improvement from the previous negative value in 2022 (-167,756,000). This suggests a turnaround and stabilization in operational cash flow, earning the company 1 point for this criterion.

Return on Assets (ROA) are growing?

Explain the criterion for Ciena (CIEN) and why it is important to consider

Return on Assets (ROA) measures a company's profitability relative to its total assets. An increasing ROA suggests that the company is becoming more efficient at converting its investments into net income. For Ciena, comparing the ROA of 0.0478 in 2023 with the ROA of 0.0308 in 2022 indicates an improvement. This increase suggests a trend of enhanced asset utilization and better profitability.

Operating Cashflow are higher than Netincome?

The criterion compares operating cash flow to net income. In Piotroski's framework, it is intended to assess the quality of earnings. If operating cash flow exceeds net income, it suggests that income is being backed by actual cash flow, which is a positive indicator of earnings quality. This earns a score of 1. If operating cash flow is less than net income, it suggests potential earnings management, earning a score of 0.

For the fiscal year 2023, Ciena's operating cash flow was $168,332,000 while its net income was $254,827,000. This results in operating cash flow being lower than net income, thus scoring a 0 for this criterion. Historically, Ciena has shown instances where operating cash flow did exceed net income, such as in 2015 with $262,112,000 in cash flow and $11,667,000 in net income. However, the more recent figures suggest that this positive trend hasn't been sustained, indicating potential issues with the quality of earnings.

Liquidity of Ciena (CIEN)

Leverage is declining?

In the Piotroski Score, leverage is examined to determine if there is a reduction in the debt level. Reduction in leverage indicates better financial health and less risk.

Comparing the leverage ratios of 0.2282 in 2022 and 0.2901 in 2023, it's clear that the leverage has increased in 2023. Typically, a decline in leverage is seen as a positive sign because it suggests that the company is reducing its reliance on debt to finance operations, thereby lowering its financial risk. Over the last 20 years, Ciena's leverage has fluctuated significantly, peaking at 0.7391 in 2011 and reaching its lowest at 0 in 2014, showing that the company has experienced various stages of financial leverage. However, the recent trend shows an increase in leverage from 2022 to 2023, indicating higher risk and therefore, no point is awarded for this criterion.

Current Ratio is growing?

The current ratio measures a company's ability to cover its short-term liabilities with short-term assets. A ratio greater than 1 indicates good short-term financial health.

For 2023, Ciena's current ratio stands at 3.8366 compared to 3.2538 in 2022. This signifies an increase and therefore adds 1 point to the Piotroski score. Notably, the industry median for the current ratio in 2023 is 1.8276, which means Ciena's financial health is substantially better than the industry average. Over the past two decades, Ciena's current ratio has shown variability, with highs and lows, yet consistently outperforming the industry median in most years. Therefore, this positive trend in 2023 is advantageous for Ciena, reflecting efficient handling of short-term obligations.

Number of shares not diluted?

The Piotroski F-Score evaluates the financial strength of a company based on various criteria, including changes in the number of shares outstanding. It is important to consider because issuing more shares can dilute shareholder value, while buying back shares can indicate a strong balance sheet.

Comparing the outstanding shares of 151,208,000 in 2022 to 148,971,000 in 2023, we observe a decrease in the outstanding shares. The outstanding shares have decreased by 2,237,000 shares in 2023. This reduction is a positive sign, earning the company 1 point in the Piotroski analysis. Over the past 20 years, Ciena's outstanding shares have generally shown an upward trend with notable fluctuations. Such buybacks are typically viewed positively as they reduce dilution and may indicate the company’s confidence in its future prospects. However, investors should also examine the reasons behind the reduction to ensure it aligns with long-term value creation.

Operating of Ciena (CIEN)

Cross Margin is growing?

Compare the Gross Margin of a company over specific periods to determine if it has improved or deteriorated, as gross margin indicates the efficiency of a company in converting revenue into actual profit.

Ciena's gross margin in 2023 was 0.4283, down slightly from 0.4295 in 2022. This marks a minor decline rather than an improvement and hence earns a score of 0. Since gross margin fundamentally indicates how effectively a firm manages its cost of goods sold relative to its revenue, any decrease, even if marginal, represents a potential concern. Over the past 20 years, Ciena has fluctuated significantly, ranging from as low as 0.2402 in 2004 to a peak of 0.4997 in 2008. Comparing with industry medians, Ciena has generally performed similarly or better, with 2023 being an exception where it falls slightly below the industry median of 0.3903.

Asset Turnover Ratio is growing?

Asset Turnover is a financial ratio that measures a company's ability to generate sales from its assets, indicating the efficiency with which the company is using its assets to produce revenue.

The Asset Turnover ratio for Ciena (CIEN) increased from 0.7313 in 2022 to 0.8221 in 2023, suggesting an improvement in the company's efficiency at generating revenue from its assets. Historically, looking at the data for the last 20 years, Ciena experienced tremendous growth in Asset Turnover from 0.1104 in 2003 to a peak of 1.1809 in 2014. Although the ratio saw some fluctuations over the years, the recent increase from 0.7313 to 0.8221 is a positive trend, indicating efforts to better utilize assets are paying off. Hence, we add 1 point for this criterion.