Morgan Stanley Downgrades Ciena Corp. Amid Margin Concerns

Morgan Stanley has downgraded Ciena Corp. (NYSE: CIEN) to Underweight from Equal-weight, citing persistent margin compression and limited near-term earnings upside. The investment bank also reduced its price target for the company to $70 from $73, attributing the adjustment to Ciena's increasing focus on lower-margin pluggable optical modules, which is impacting its profitability. Analysts Meta Marshall and Mary Lenox highlighted that while revenue estimates for fiscal 2026 have increased by 5% since March 2024, EPS estimates have decreased by 9%, with gross margin shortfalls mainly due to the expansion in the pluggables business.

Despite the potential for margin improvement with the adoption of 800ZR and RLS line cards, the analysts anticipate that the additional revenue will not compensate for the previous margin levels. Following the announcement, Ciena's shares saw a slight decline. The company's strategic pivot towards high-speed optical interconnects, including pluggables for data centers and metro networks, places it in sectors with high demand, such as cloud infrastructure and AI workloads. However, this shift is expected to dilute earnings in the short term.

In a contrasting move, Morgan Stanley increased price targets for Corning Inc. (NYSE: GLW), Coherent Corp. (NYSE: COHR), and Lumentum Holdings (NASDAQ: LITE), signaling a positive outlook on the optical infrastructure sector. The firm retained Equal-weight ratings on these companies, pointing to the escalating demand for fiber and optical transmission driven by higher data speed requirements. The downgrade of Ciena highlights the difficulties of sustaining profitability while strategically aligning with next-generation networks, a challenge likely to persist as competition in high-speed connectivity grows more intense.