EX Switches Could Lift Juniper’s Stock by 7%

| About: Juniper Networks (JNPR)

Networking equipment manufacturer Juniper (NYSE:JNPR) reports strong sales of its EX series ethernet switches. In its earnings announcement for the second quarter of 2010, management noted that Juniper’s share of the rebounding switch market had increased.

Juniper competes mainly with Cisco (NASDAQ:CSCO) in the networking equipment market. Based on Juniper’s strong recent performance, we have raised the Trefis price estimate for Juniper’s stock from $23.35 to $25.15. If the company’s current momentum continues, we expect to see additional share gains in the so-called bottom-layer switch market, presenting an additional upside of 7% for Juniper’s stock. Our analysis follows below.

Enterprise Demand for 10-Gigabit Ethernet Driving EX Growth

Although Juniper is a relatively new player in the switching market, its EX series switches have been well-received by enterprises and Internet service providers. Demand for EX switches has been especially strong in the enterprise segment. Juniper’s enterprise revenues increased from 34.7% of total revenues in the second quarter of 2009 to 36.6% in Q2 of 2010.

Juniper’s EX revenues are benefiting from corporate demand for 10-gigabit ethernet technology. As economic conditions improve, companies are upgrading their IT infrastructures to handle ever-increasing traffic.

Market Share Gains

We expect Juniper’s share of the bottom-layer switch market to increase during the Trefis forecast period, reaching 5.7% by 2016. You can drag the trend-line in the chart below to create your own switch market share estimate for Juniper and see how it impacts the company’s share value

We currently expect the total value of the bottom-layer switch market to reach $20 billion by the end of our forecast period. The next interactive chart models the impact of an expanding switch market on Juniper’s stock price:

If demand for Juniper’s EX series switches continues along its current trajectory, we would expect the switching market to grow faster than our current forecast, reaching $24 billion by 2016. We would also expect additional market share gains for Juniper, amounting to about 6.5% by the end of our forecast period. This scenario yields a potential stock price upside of about 7%.

Disclosure: No positions