Among the biggest losers in Thursday's early trading are
Ciena (Nasdaq:
CIEN
)
and
Vera Bradley (NYSE:
VRA
)
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Women's accesory maker Vera Bradley is making its second
appearance in the "losers" list in just one week. On Monday, Aug.
27,
I noted that
a recent drop in the stock "implies an imminent
disappointment." Well, the traders were right. After Wednesday's
close this accessories retailer deliveredearnings per share (
EPS
) of 33 cents that were two cents shy of the consensus forecast,
and management cautioned that the rest of the year won't look so
good either. Yet it's important not to get carried away. Whereas
the company (and analysts) had been anticipating around $1.69 a
share in profits in fiscal (January) 2013, the updated view calls
forEPS of $1.61, which isn't a big downward revision and still
represents growth from the EPS of $1.43 in fiscal 2012.
Lazard's Jennifer Davis, who predicted that management would
take a cautious view, is sticking by her $34price target ,
representing more than 50% upside. She notes that Vera Bradley saw
weakness in the first two months of the quarter but saw
improvements in July. The analyst applauds the company's imminent
move into new retail niches, which should help to reinvigorate
sales growth. "Over time, as VRA continues to expand into new
categories, (jewelry this year, Vera Bradley Baby next year) we
believe it will become less dependent on new patterns."
The telecom trade is long gone
Roughly 15 years ago, investors began buzzing about telecom
equipment stocks, as companies such as
Cisco Systems (Nasdaq:
CSCO
)
,
Tellabs (Nasdaq:
TLAB
)
and Ciena booked huge orders to help the phone and cable companies
gear up to handle rising volumes of Internet traffic.
These network equipment providers fell deeply out of favor once
the dot-com boom ended, and have landed in few growth-oriented
portfolios ever since. Their real appeal is for the value crowd, as
they often sport robust balance sheets in the context of
theirmarket valuation. Still, quarterly results do matter, a point
brought home by Ciena, which is posting a double-digit drop this
morning after trailing estimates and lowering guidance in its
fiscal third-quarter report released before the opening.
Only recently, investors thought this company was on the cusp of
a renaissance as telecom operators signaled an interest in
upgrading their networks.Shares had risen more than 35% this year.
Those hopes are now dashed asCEO Gary Smith concedes that "We are
experiencing the effects of ongoing macroeconomic challenges and
slower-than-expected rollouts of new design wins."
So is Ciena now a value play? Not really. The company's $591
million cash balance equates to an impressive 35% ofmarket value ,
yet rival Tellabs' $1.15 billion cash balance equates to nearly 90%
of its market value. Even Cisco Systems looks better by this
measure, with a $52 billion cash balance, equating to half its
market value.
Action to Take -->
Ciena appears to be dead money. It lacks catalysts and doesn't hold
as much appeal to value investors as rivals. Vera Bradley, on the
other hand, looks well-positioned from an expansion in its core
offerings. The company may be producing a bit of quarterly noise
these days, but is clearly one of the hot new retail brands to
emerge in recent years. With shares trading for less than half of
their52-week high , long-term investors might be looking at an
appealing entry point.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of CSCO in one or more if its "real money" portfolios.