MKM Downgrades Juniper, Notes 'Good Chance' Company Will Miss Earnings

In a report published Monday, MKM analyst Michael Genovese downgraded the rating on

from Neutral to Sell, while maintaining the price target at $22. The company's share price has risen 16 percent since the announcement of the 1Q15 earnings. The stock has risen due to the 1Q earnings beating the expectations, the management's optimistic comments regarding future demand, as well as M&A speculations. However, the analyst expects the company to miss the consensus projections for 2H15, while believing that Juniper Networks is unlikely to be acquired by a larger vendor. The analyst also does not expect a strong recover in the Tier 1 SP Router segment in the near future. According to the MKM report, the bull case for the company is built on "faulty assumptions" that ignore "major secular transition." While larger carriers appear to be committed to "a multi-step network transition that includes fewer Routing nodes (more Optical nodes) and aggressive Router pricing demands near-term. Longer-term, over the next 1-5 years, the Tier 1s want to deploy more multi-purpose, standardized hardware and to open-up the network software to be more multi-vendor and programmable," Genovese said. The analyst also believes that the consensus projections for 2H15 are too high, based on the expectations of higher capex in 2H, given the new CEO, new products and strong Internet and Cable demand.