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Ciena (CIEN) Earnings Power Value (EPV) : $30.59 (As of Apr24)


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What is Ciena Earnings Power Value (EPV)?

As of Apr24, Ciena's earnings power value is $30.59. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is -61.45

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


Ciena Earnings Power Value (EPV) Historical Data

The historical data trend for Ciena's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Ciena Earnings Power Value (EPV) Chart

Ciena Annual Data
Trend Oct14 Oct15 Oct16 Oct17 Oct18 Oct19 Oct20 Oct21 Oct22 Oct23
Earnings Power Value (EPV)
Get a 7-Day Free Trial Premium Member Only Premium Member Only -59.07 -76.43 -90.51 -149.93 28.46

Ciena Quarterly Data
Jul19 Oct19 Jan20 Apr20 Jul20 Oct20 Jan21 Apr21 Jul21 Oct21 Jan22 Apr22 Jul22 Oct22 Jan23 Apr23 Jul23 Oct23 Jan24 Apr24
Earnings Power Value (EPV) Get a 7-Day Free Trial Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 30.12 29.13 28.46 31.51 30.59

Competitive Comparison of Ciena's Earnings Power Value (EPV)

For the Communication Equipment subindustry, Ciena's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


Ciena's Earnings Power Value (EPV) Distribution in the Hardware Industry

For the Hardware industry and Technology sector, Ciena's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where Ciena's Earnings Power Value (EPV) falls into.



Ciena Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

Ciena's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 3,810
DDA 135
Operating Margin % 10.63
SGA * 25% 162
Tax Rate % 14.03
Maintenance Capex 67
Cash and Cash Equivalents 1,257
Short-Term Debt 32
Long-Term Debt 1,569
Shares Outstanding (Diluted) 145

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 10.63%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = $3,810 Mil, Average Operating Margin = 10.63%, Average Adjusted SGA = 162,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 3,810 * 10.63% +162 = $567.288638972 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 14.03%, and "Normalized" EBIT = $567.288638972 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 567.288638972 * ( 1 - 14.03% ) = $487.68102426506 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 135 * 0.5 * 14.03% = $9.484301281 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 487.68102426506 + 9.484301281 = $497.16532554606 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
Ciena's Average Maintenance CAPEX = $67 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. Ciena's current cash and cash equivalent = $1,257 Mil.
Ciena's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 1,569 + 32 = $1601.224 Mil.
Ciena's current Shares Outstanding (Diluted Average) = 145 Mil.

Ciena's Earnings Power Value (EPV) for Apr24 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 497.16532554606 - 67)/ 9%+1,257-1601.224 )/145
=30.59

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( 30.591766729544-49.39 )/30.591766729544
= -61.45%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


Ciena  (NYSE:CIEN) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


Ciena Earnings Power Value (EPV) Related Terms

Thank you for viewing the detailed overview of Ciena's Earnings Power Value (EPV) provided by GuruFocus.com. Please click on the following links to see related term pages.


Ciena (CIEN) Business Description

Industry
Address
7035 Ridge Road, Hanover, MD, USA, 21076
Ciena Corp is a network and technology company. It provides network hardware, software, and services that support the transport, switching, aggregation, service delivery, and management of video, data, and voice traffic on communications networks. It serves various industries such as communication services providers, web-scale providers, cable operators, government, and large enterprises world-wide. The business activities function through Networking Platforms; Platform Software and Services; Blue Planet Automation Software, and Global Services segments. Geographically, its presence is seen in the markets of the United States, Canada, the Caribbean, Latin America, Europe, the Middle East, Africa, the Asia Pacific, Japan, and India. The maximum revenue is generated from Americas.
Executives
David M Rothenstein officer: Sr. VP, General Counsel 7035 RIDGE ROAD, HANOVER MD 21076
Gary B Smith director, officer: President, CEO C/O CIENA CORPORATION, 7035 RIDGE ROAD, HANOVER MD 21076
Brodie Gage officer: SVP Global Products & Supply 2351 ALFRED-NOBEL BLVD, SUITE N-300, SAINT LAURENT A8 H4S 2A9
Dino Diperna officer: SVP Global R&D 385 TERRY FOX DR, OTTAWA A6 K2K OL1
Jason Phipps officer: SVP Global Sales and Marketing 7410 RIDGE RD, HANOVER MD 21076
Joseph Cumello officer: SVP, General Mgr. Blue Planet 7035 RIDGE RD, HANOVER MD 21076
Scott Mcfeely officer: SVP, Networking Platforms 7035 RIDGE RD, HANOVER MD 21076
Mary G Puma director AXCELIS TECHNOLOGIES INC., 108 CHERRY HILL DRIVE, BEVERLY MA 01915
Andrew C Petrik officer: VP, CONTROLLER 7035 RIDGE ROAD, HANOVER MD 21076
Sheela Kosaraju officer: SVP, General Counsel 43-51 WORSHIP ST, LONDON X0 EC2A 2DX
Stephen B Alexander officer: SVP, Chief Technology Officer C/O CIENA CORPORATION, 7035 RIDGE ROAD, HANOVER MD 21076
Rick Hamilton officer: SVP, Software and Services 9500 AMBERGIEN, AUSTIN TX 78729
Moylan James E Jr officer: SVP Finance, CFO CIENA CORPORATION, 7035 RIDGE ROAD, HANOVER MD 21076
Judith M Obrien director 855 MAUDE AVENUE, MOUNTAIN VIEW CA 94043
Thomas Michael Nevens director C/O BORLAND SOFTWARE CORPORATION, 20450 STEVENS CREEK BLVD, SUITE 800, CUPERTINO CA 95014