Juniper Networks (JNPR), the maker of routers and switches, announced a $1 billion buyback on Tuesday in part to mitigate the effects of share dilution from employee stock grants. We view this decision as value-creating, as shares are trading below our estimate of its fair value. Still, we don't expect that any upward revision we make to our fair value estimate will be material in nature.
Revenues and earnings have been under pressure recently due to soft business infrastructure spending, pushback from Cisco (CSCO), and an impending product refresh. We think revenue growth will continue in 2013 when the newest generation of router technology comes online; however, we think the company will have to continue its high R&D spending to keep pace with Cisco-a firm that's cash balance is almost 11x Juniper's total revenue in 2011. With growth stagnated at Cisco, we suspect the company will invest heavily to provide enterprises with superior products. The company even partnered with flash-storage solutions firm Fusion-iO (FIO) to bring flash technology to its UCS B-Series Server.
Ultimately, new products, clarity on the corporate tax code and macroeconomic acceleration could provide catalysts for enterprise spending, which would benefit both Cisco and Juniper. However, we are waiting for a more attractive entry point to get excited about Juniper's stock. We'd require the firm's share price to fall below the low end of our fair value estimate range on improving technicals in order to add it to our Best Ideas portfolio.