With a daily gain of 3.08%, a 3-month loss of -2.15%, and an Earnings Per Share (EPS) of 1.25, Juniper Networks Inc (JNPR, Financial) presents an interesting case for valuation analysis. This article aims to determine whether the stock, currently trading at $27.96, is undervalued, overvalued, or fairly priced. Let's delve into the financials and market position of Juniper Networks to answer this question.
Company Overview
Juniper Networks Inc is a leading player in the design, development, and sale of high-performance network products and services. The company enables customers to build scalable, reliable, secure, and cost-effective networks for their businesses, with a focus on agility and improved operating efficiency through automation. Its offerings include routing, switching, Wi-Fi, network security, artificial intelligence (AI), AI-enabled enterprise networking operations (AIOps), and software-defined networking (SDN) technologies. Juniper Networks also provides a variety of services, including maintenance and support, professional services, Software-as-a-Service (SaaS), and education and training programs.
With a market cap of $9 billion and sales of $5.70 billion, Juniper Networks' stock price of $27.96 is compared with its GF Value of $34.19, indicating that it may be modestly undervalued.
Understanding GF Value
The GF Value is an exclusive GuruFocus metric that represents the current intrinsic value of a stock. It is derived from historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides a quick overview of the fair value at which the stock should ideally trade.
According to our GF Value, Juniper Networks (JNPR, Financial) is modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth. The GF Value chart below provides a visual representation of this valuation.
Link: These companies may deliver higher future returns at reduced risk.
Assessing Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are two key metrics that can shed light on a company's financial strength. Juniper Networks has a cash-to-debt ratio of 0.73, which is worse than 63.11% of companies in the Hardware industry. However, its overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies tends to carry less risk, especially if the company has demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Juniper Networks has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $5.70 billion and Earnings Per Share (EPS) of $1.25. Its operating margin of 11.24% is better than 79.5% of companies in the Hardware industry. Overall, GuruFocus ranks Juniper Networks's profitability as strong.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Juniper Networks is 8%, which ranks better than 61.15% of companies in the Hardware industry. However, its 3-year average EBITDA growth rate is 6.4%, which ranks worse than 58.66% of companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Juniper Networks's ROIC is 7.44 while its WACC came in at 8.78.
Conclusion
In summary, the stock of Juniper Networks (JNPR, Financial) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 58.66% of companies in the Hardware industry. To learn more about Juniper Networks stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
