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Juniper Networks Is a Good Long-Term Buy

June 05, 2014 | About:
kcpl

kcpl

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Juniper Networks (JNPR) has been sailing through troubled waters for quite some time. It is mainly on account of the security issues related to its hardware components. It has been found that Juniper’s networking products such as routers, switches and security firewalls are affected by the Heartbleed web-security flaw. This is a matter of serious concern for the company as it could destroy its image in the market. But it is not the only one with this problem. Its rival Cisco (CSCO) is also found to have the same flaw. There is more to Juniper’s story than this, which we shall see in detail.

Juniper's Moves

The company is focused on streamlining its business, and as a result of that it has planned to resize its workforce. It has announced to cut its workforce by 6%, which would considerably reduce its unwanted expenses. Although investors may be perplexed from these short-term disturbances, but from a long term perspective, Juniper still seems to be a good investment option. In fact, the company has already started to mend the security issues in its products. In addition to this, its new product launches will provide Juniper an edge over its peers such as Cisco and Alcatel-Lucent.

Juniper reported some decent numbers for the quarter backed by strength in systems, silicon, and software to build customized networks for customers. Its revenue increased 12% as compared to last year and earnings rose 59% from the year-ago period. Management plans to strengthen its business in network service by developing best-in-class cloud solutions and intelligent networks.

Going forward, Juniper has various strategies under its sleeve, which will enable the company to retain its customer base as well as attract new customers. Moreover, as already mentioned, the company has undertaken various cost cutting initiatives, and is investing in only those products that would yield profits in the long run.

Product Moves

The company reported strong sales for its products EX and QFabric, which was one of the main growth drivers for its revenue. In addition to this, its latest launch MX104 router also received a solid response from the market and the management expects its sales to be even better in the days ahead. The addition of QFX5100 top-of-rack switch will be a solid boost for the company’s switching portfolio.

However, the company observed weakness in some its products such as T4000 PTX, MobileNext, and ACX. Consequently, Juniper has removed MobileNext from its portfolio and is focusing more on profitable options. The decision about MobileNext was taken this year and it will prove to be of great advantage for the company in the future.

Competitive Landscape

In addition to the internal problems it is facing, Juniper has to face tough competition from its peers such as Cisco and Alcatel. But Cisco has not been doing well lately. From spying scandal allegations to the Heartbleed flaw, Cisco has been in news for quite some time and its all for wrong reasons. This has severely affected its sales both in domestic as well as emerging markets such as Russia and Brazil, where customers have lost confidence in Cisco’s hardware. As a result, it has cut its long-term growth forecast to a range of 3% to 6% from the previous 5% to 7%.

Moreover, the Heartbleed flaw can further mar Cisco’s image, as the company is still struggling to fix the problem. Cisco’s failure could be Juniper’s edge in the emerging markets.

Although Cisco does not pose much of a threat to Juniper, but Alcatel does. Alcatel has lately reported some good wins in the U.S. in the router business in addition to six design wins for its core router products at the beginning of 2013. In total Alcatel has won around 20 designs for the year. Its strong growth was even reflected in its numbers as it saw 16% growth in its core products, and management is confident that this trend will continue in the days ahead.

Conclusion

Juniper has a trailing P/E of 28, which seems to be quite expensive but its forward P/E looks impressive at 13, which indicates strong earnings growth in the future. Although comparing with Cisco, Juniper seems to be expensive but Juniper’s revenue and earnings are growing while Cisco is seeing weakness. Going forward Juniper is well-positioned for long-term growth. The management has taken various initiatives to cut costs and introduce new products, which will improve its financial performance.


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