Should You Buy Juniper Networks?

| About: Juniper Networks (JNPR)


Cost cutting initiatives should benefit Juniper in the long run.

Increasing demand from telecommunications companies will drive Juniper’s growth.

The expansion into the booming SDN market can be a game changer.

A great buy at present valuations.

Juniper Networks (NYSE:JNPR) has started 2014 impressively as shares have already gained in the mid-teens. The network equipment and service provider has been gaining pace as telecom and data center spending has picked up. Going forward, investors can expect Juniper to continue rising after it reported impressive fourth-quarter results as its prospects look bright.

Juniper Networks has successfully addressed the market's need for high performance, agility, security, automation and context aware networks in an open framework. It has promisingly addressed its customers' most pressing requirements through its assets, technology and dedicated workforce. Going forward, its focus on new revenue growth opportunities, speed-to-market, service quality and operational and capital efficiency should continue driving Juniper's performance.

The Way Ahead

Juniper Networks is developing an integrated operating plan that addresses three key priorities. First, it is focusing on thoughtful, highly value accretive innovations where it excels. Secondly, it is implementing a more efficient cost structure, in line with its strategic focus and the competitive environment, resulting in reduced costs. Finally, it is taking an in-depth look at future cash flows and capital structure to assess best capital returns to shareholders.

Also, Juniper Networks continues to see strength across its customer base, especially in cable and content or Web 2.0 providers. It had dropped MobileNext from its product offerings that include T4000 PTX, QFabric, and ACX, but has introduced a number of other new product lines. Juniper's restructuring and rebalancing moves in the previous quarter comprised of eliminating 240 exhibitions, of which 112 were in research and development and 95 in sales and marketing. It also downsized its headcount as a cost controlling measure.

Going forward, Juniper anticipates healthy overall demand. Telecommunications companies, which provide about 60% of Juniper's revenue, are increasing their demand, consequently benefiting Juniper. Juniper is upgrading its networks to handle increased data traffic from smartphones and tablets.

Juniper derives nearly 50% of its revenue from the router business, and has slowly gained market share even after the presence of bigger rivals like Cisco. The company has consistently delivered strong revenue growth over the past few quarters and is quite profitable with operating margins of almost 13%. Apart from the router business, Juniper is also focusing on building cloud networks. ISI Group hardware analyst Brian Marshall said:

"We hosted a 1×1 meeting with JNPR's new CEO Shaygan Kheradpir and were impressed with his message to the investment community. While only on the job for technically less than 50 days, Shaygan has already started to realigned JNPR and is focused on the fastest growing opportunities in the industry (e.g., building cloud and high "IQ" networks). Maintain STRONG BUY and $30 PT with potential upside likely to our earnings power of $2.00+ in 2015."

The expansion into software defined networking (SDN) is specifically important as SDNCentral predicts that yearly worldwide spending by Internet, telecom and other service providers on SDN systems will soar and hit the $25 billion mark in 2018. This will ultimately benefit Juniper in the long run. In addition, Juniper is looking to streamline its cost structure and create a more focused, connected, agile and execution-oriented business structure model under its One-Juniper plan, which includes joining its own engineering, R&D and go-to-market teams to provide innovative solutions to clients.

Also, Juniper recently committed to return a minimum of $3 billion to shareholders in the time span of three years through a combination of share repurchases and dividends. As per this plan, Juniper's board has authorized a $2 billion share buyback program, which is to be executed through the end of first quarter of 2015, including $1.2 billion through an accelerated share repurchase program to be entered into shortly. Juniper will also initiate a quarterly dividend of $0.10 per share in the third quarter of 2014, and may increase it over time.

Also, Juniper can benefit from the fact that its rival, Cisco Systems (NASDAQ:CSCO), reported weak fourth-quarter earnings due to weak demand in developing countries. Also, some of Cisco's important product lines are in a transition phase. In December last year, Cisco had lowered its annual sales growth outlook for the next 3-5 years to 3%-6% from 5%-7%. This is seen as a huge opportunity for Juniper to capture more of the hardware market that is slipping from Cisco's grasp.


So Juniper has a number of catalysts at its back at the moment. The company is expected to benefit from rival Cisco's woes and strong earnings growth is also expected in the future. With an earnings growth CAGR of 13.45% expected over the next five years, Juniper looks like a good investment. Also, it won't be surprising if this projection is upgraded by analysts over time since Juniper's new products and expansion in SDN will provide it with greater growth opportunities going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.