Karishma Vanjani

Ciena isn't the most widely recognized tech name, but it is worth adding to your portfolio at the current levels, according to J.P. Morgan analyst Samik Chatterjee.

On Tuesday, he raised his rating on shares of the networking-equipment company to Overweight, the equivalent of Buy, from Neutral. His new target for the stock price is $88, compared with $84 earlier. It implies a 15% gain from the stock's Monday closing price of $76.29.

Ciena's shares got hurt badly in Monday's tech rout, falling 21%, the largest one-day percent decrease seen since September 2020, when downbeat commentary from management slammed the stock. Now, concern that cheaper artificial intelligence models from DeepSeek, a Chinese startup, will disrupt AI spending have hit shares across the tech sector, from Nvidia to equipment suppliers like Ciena.

Chatterjee calls the reaction "exaggerated," saying he sees "an interesting entry point into shares" of Ciena. After the latest pullback, the stock trades at 19 times J.P. Morgan's forecast for earnings per share in calendar 2026, largely in line with the five-year average valuation of 18 times earnings. Investors should pay 24 times the company's 2026 earnings, according to the analyst, meaning the stock is cheap.

Valuation aside, there are other near-term drivers for the stock price to rise, such as strong investments from cloud software providers in data centers and a recovery in telecommunications. Ciena provides networking solutions to AT&T, among other telecoms.

There's "ample upside for the shares following the pull-back yesterday," the analyst wrote.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 28, 2025 09:34 ET (14:34 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.