Juniper Networks: A Buy On A Market Overreaction To Weak Near-Term Environment

Mar.13.12 | About: Juniper Networks (JNPR)

After reaching $45 a share early last year for a decade high, Juniper Networks (NYSE:JNPR) has been weak, tumbling all the way to $17 a share due to weak demand from service providers. The end of 2011 was particularly weak. In its Q4 release, management said that "the December quarter was an atypical and unexpectedly weak finish to the year, with reduced spending by some of our largest customers."

The outlook wasn't any different as management said that it expects "the near-term environment to remain challenging." Juniper further noted that its guidance for the March quarter "reflects near-term uncertainty in the macro-environment and the effect it may have on the level, timing, and prioritization of customer demand."

Analysts are obviously overstating the impact of the near term challenging environment for Juniper and suggesting low upside for the stock. However, I think the better metric to look at here is the trailing valuation metrics as nothing has fundamentally changed about the company except for the near-term difficulties. Carriers demand will eventually recover for Juniper's products. The near term may be a little rocky but the current stock price makes Juniper and very attractive opportunity. Below is an in depth look at the valuation metrics and stock chart.

Valuation: Juniper Networks' trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Juniper Networks' current P/B ratio is 1.6 and it has averaged 2.3 over the past 5 years with a high of 3.6 and low of 1.3. Juniper Networks' current P/S ratio is 2.5 and it has averaged 4.1 over the past 5 years with a high of 7.2 and low of 2. Juniper Networks' current P/E ratio is 26.8 and it has averaged 41.9 over the past 5 years with a high of 121.2 and low of 17.8.

Price Target: The consensus price target for the analysts who follow Juniper Networks is $22. That is upside of 6% from today's stock price of $21.15 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Juniper Networks is currently trading at about $21 a share with analysts expecting EPS of $1.24 next year, an earnings increase of 31% y/y, for a forward P/E ratio of 17.1. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Cisco Systems (NASDAQ:CSCO) is currently trading at about $20 a share with analysts expecting EPS of $1.97 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 10.1.

Motorola Solutions (NYSE:MSI) is currently trading at about $50 a share with analysts expecting EPS of $3.31 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 15.2. Alcatel-Lucent (ALU) is currently trading at about $2 a share with analysts expecting EPS of $0.33 next year, an earnings increase of 18% y/y, for a forward P/E ratio of 7.1. The mean forward P/E of Juniper Networks' competitors is 10.8 which suggests that Juniper Networks is overvalued relative to its publically traded competitors.

Earnings Estimates: Juniper Networks has beat EPS estimates 0 times in the past 4 quarters. The company's EPS figures have come in between -3 cents and 0 cents from consensus estimates or about -8.8% to 0% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.

Price Action: Juniper Networks is down 48.2% over the past year, underperforming the S&P 500, which is up 7.4%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $22.20 and below its 200 day moving average, which sits at $23.65.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.