Morgan Stanley Downgrades Ciena Amid Margin Concerns and Limited Earnings Growth

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 on the Hanover, Md.-based company to $70 from $73. Analysts Meta Marshall and Mary Lenox pointed out that while revenue forecasts for fiscal 2026 have increased by 5% since March 2024, EPS estimates have decreased by 9%, primarily due to the company's growing focus on lower-margin pluggable optical modules.

The shift towards pluggables, used in data centers and metro networks, positions Ciena in high-demand areas such as cloud infrastructure and AI workloads. However, this strategic pivot is expected to dilute earnings in the short term. Ciena's shares dipped approximately 1% following the announcement, reflecting investor concerns over the company's profitability amidst its evolving product mix.

In contrast, Morgan Stanley raised its price targets on three other networking companies—Corning Inc. (NYSE: GLW), Coherent Corp. (NYSE: COHR), and Lumentum Holdings (NASDAQ: LITE)—signaling broader optimism around optical infrastructure. Despite this, the firm maintained Equal-weight ratings on all three, noting that the datacom segment's lower margins may not fully translate into EPS upside.

The downgrade underscores the broader challenge facing Ciena and its peers in the optical networking space: how to navigate the high-speed connectivity arms race while maintaining profitability. As competition intensifies, companies like Ciena must balance strategic investments in next-generation networks with the need to deliver shareholder value, a tension that is likely to persist in the coming years.