Analysts Optimistic on Juniper's New Operating Plan

Shares of

are gaining traction on Friday following management's announcement of a new "Integrated Operating Plan" after Thursday's close. Shares of Juniper have gained 2.4% in pre-market trading as investors respond to management's plans to spend $1 billion on dividends over the next three years, increase the operating margin to 25% in 2015, and spend $2 billion on share repurchase by 1Q15.

In the recent press release, Juniper announced a new integrated operating plan (IOP) aimed to "refocus the Company on innovation that matters most to service providers and enterprises where demand for High-IQ Networks and best-in-class cloud environments are driving growth." The IOP will focus on Juniper's engineering in High-IQ Networks and aiding Cloud builders, an "optimized One-Juniper structure" to better optimize performance and efficiency, and an "aggressive" capital allocation plan. CEO of Juniper Networks Shaygan Kheradpir commented, "The initiatives announced today are based on a comprehensive review of our business and customer needs, and we are confident that they will drive long-term, profitable growth by capturing greater share in the most meaningful market segments. In the near-term, we will align our cost structure around this new strategy and expect to deliver improved performance for our shareholders through operating margin expansion and a more aggressive capital return plan that preserves our ability to invest in innovation."

Jefferies analyst George Nottor raised the price target from $25.50 to $30.00 noting the company's new IOP "diffuses any potential standoff with activist investor Elliott. Nottor added that if Juniper executes the plan in full, the company could reach a $2.00 EPS versus consensus estimate of $1.71. Scott Thompson from FBR remains cautious on long-term growth due to concern over Juniper's "ability to deliver on consensus revenue and gross margins estimates." The analyst emphasized the company's "dramatically changing" industry dynamics. Despite these concerns, Thompson wrote that the combination of cost cuts and capital returns could drive year-over-year EPS growth of approximately 13% in 2014 and 2015. FBR raised their price target from $25.00 to $27.00. Citigroup analyst Ehud Gelblum reiterated a Neutral rating on Juniper Networks and raised the price target from $27.00 to $28.00. Gelblum reported that the "$160M cost savings target (or $40M/qtr) is achievable as $60M of the $160M comes from lower legal exp after the PANW case making the actual target just $100M, half the initial Elliot ask. This is inline with our prior writing that we remained skeptical JNPR could cut $200M of true opex without affecting topline prospects." Brian Modoff from Deutsche Bank maintained a Neutral rating and $26.00 price target. Deutsche Bank noted that shares are fairly valued at current levels and does not see " meaningful upside surprises on the topline." The analyst remarked that "We remain with our neutral near-term view on the stock with our Hold rating – noting our caution that management could be trying to be “all things to all people” – i.e. looking to address the activist proposals, focusing on not missing on product launch timing or distraction to sales execution at reduced opex levels, etc." ISI analyst Brian Marshall reported that Juniper is "Providing solutions to the 'service provider quagmire'." Marshall continued, "Global service providers are currently facing a complex dilemma due to the mismatch of future traffic/revenue growth forecasts combined with the increasing costs of deploying a network infrastructure robust enough to support those traffic projections. In our view, JNPR leads the industry in innovation and has developed intriguing products that will enable service providers to offer compelling new services/features on a new converged infrastructure platform, which would not be cost-effective on legacy networks." ISI maintained a Strong Buy on Juniper and raised the price target from $28.00 to $30.00. Bank of America analyst Tal Liani maintained a Buy rating on Juniper and raised the price target from $28.75 to $34.00. Liani commented, "While it's easy for us to model the first two ingredients of the plan (cost cuts and buybacks), the more interesting parts are related to the portfolio changes. Management is not disclosing its exact plans, but clearly states that it includes areas that will be de- emphasized/exited, and areas of increased investments. At a high level, it is looking to align the company's structure and its product portfolio around few streamlined offerings that combine Juniper's engineering strength in routing, switching, security and network management."