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 delivered earnings 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 for EPS of $1.61, which isn't a big downward revision and still represents growth from the EPS of $1.43 in fiscal 2012.
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 their market 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 as CEO 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% of market 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 their 52-week high, long-term investors might be looking at an appealing entry point.