Ehud Gelblum, an analyst with J.P. Morgan, this morning raised his rating on Juniper Networks (NYSE:JNPR) to Overweight from Neutral, asserting that the company should see revenue re-accelerate in 2007, “driving margin re-expansion in the back half of the year and into ‘08.”
Gelblum says he sees revenue growth of 16.9% next year and 18.2% in 2008, up from 11.5% this year, driven by its new E320 edge router, growth in IPTV traffic and traction for the company’s enterprise strategy.
“Juniper’s operating margins have been declining steady since [the fourth quarter of 2005], which not coincidentally marked the first quarter since 2002 that the company guided to a sequential revenue growth decline, as Juniper entered into an R&D investment cycle, while top-line growth remained paltry,” he writes in a research note this morning. “However, as revenue growth reignites, we expect growth of R&D expenses to slow as Juniper exits its latest catch-up investment cucle and is able to leverage its operating expenses taking operating margin form an estimated 22.3% in [the fourth quarter 2006] to 26% in ‘08, and driving EPS growth of 20.1% and 26.1% in ‘07 and ‘08, respectively, from just 3.4% in ‘06.
Juniper shares today are up 73 cents at $21.21.