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I Think Juniper Still Has Plenty of Room

ovenerio

ovenerio

4 followers

In this article, let's take a look at Juniper Networks, Inc. (JNPR), a $10.61 billion market cap company, which provides Internet Protocol networking products and services, with an emphasis on telecom routing solutions.

One of four

Juniper is one of the four largest suppliers of service provider routers and switches. It competes with Cisco (CSCO) in an industry that is characterized by high barriers to entry, but only these two companies demonstrated consistent profitability and a stable market share over the last ten years.

We believe it will continue to be an important supplier of carrier-grade routers in the future. Although Juniper's routers are technically complex, carriers may spend lot of time analyzing new equipment before purchasing it.

It also faces increasing competition from Alcatel-Lucent (ALU) and Huawei. However, we believe that the company can maintain a strong market position in the future. Juniper can expand its business by focusing on service providers and large enterprise data centers.

Acquisitions

Juniper Networks expanded its product portfolio by making acquisitions. So the firm has invested heavily in acquisitions as well as internal development. In 2004, the acquisition of NetScreen gave Juniper a good position in the firewall market. Other acquisitions include: Mykonos Software, a web security software company, BitGravity, source code license, patent joint-ownership; and Conrail Systems, a software networking company providing SDN solutions technology. These acquisitions helped to accelerate the entry into specific markets.

Relationships

Juniper has strategic reseller relationships with Nokia Siemens Networks, Ericsson AB, and International Business Machines (IBM), for the resale of products in a non-exclusive basis.

Further, the company has worked with more than 9,000 channel partners. Partnerships with Avaya Inc., Microsoft Corporation (MSFT), NEC and Symantec Corporation (SYMC) and the Original Equipment Manufacturer (OEM) agreement with IBM are key actions for the future.

Revenues, margins and profitability

Looking at profitability, revenue growth by 6.84% led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.46 vs $0.19). In the past fiscal year, the company increased its bottom line by earning $0.86 versus $0.36 in the prior year. This year, Wall Street expects an improvement in earnings ($1.49 versus $0.86).

Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

Ticker

Company

ROE (%)

JNPR

Juniper

6.02

ALU

Alcatel-Lucent

-44.46

CSCO

Cisco Systems, Inc.

16.89

 

Industry Median

5.00

The company has a current ROE of 6.02% which is higher than the one exhibit by Alcatel-Lucent. In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Cisco could be the option. It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.

1409026919653.png

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 20.1x, trading at a discount compared to an average of 45.8x for the industry. To use another metric, its price-to-book ratio of 1.8x indicates a discount versus the industry average of 2.22x while the price-to-sales ratio of 2.4x is above the industry average of 1.47x.

As we can see in the next chart, the stock price has a downward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $9.338, which represents a negative compound annual growth rate (CAGR).

1409026897038.png

Final comment

There are research studies that say that the market for big data technology and services is expected to grow and project this market will exceed $50 billion by 2017.

The fact that Juniper can gain share in the Ethernet switch market as well as the efforts to improve its cost structure are good signals for me. Moreover, the PE relative valuation and the return on equity that exceeds the industry average make me feel bullish on this stock.

Hedge fund gurus like John Hussman (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Paul Singer (Trades, Portfolio) and the fund Diamond Hill Capital (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014.

Disclosure: Omar Venerio holds no position in any stocks mentioned

About the author:

ovenerio
We provide independent fundamental research and hedge fund and insider trading focused investigation.

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