Why Goldman Sachs Prefers Juniper To Cisco Systems

Cisco Systems, Inc. CSCO reported broadly in-line FQ1 results, but announced weak guidance for FQ2. Expressing concern around Cisco’s market share contraction and limited exposure to cloud, Goldman Sachs’ Simona Jankowski said in a report that Juniper Networks, Inc. JNPR was a better option.

Jankowski maintains a Neutral rating on Cisco, with a price target of $32. The rating on Juniper is a Buy, and the stock was added to Goldman Sachs' Conviction List earlier this week.

Results And Guidance

Cisco reported its FQ1 sales at $12.35 billion, versus Goldman Sachs’ estimate of $12.37 billion and the Street’s $12.33 billion. Non-GAAP EPS came in at $0.61, slightly ahead of Goldman Sachs’ estimate of $0.60 and the Streets $0.59.

The company guided to FQ2 sales of $11.4 billion–$11.6 billion, short of Goldman Sachs’ prior estimate of $12.15 billion and the Street’s $12.14 billion. The EPS guidance came in at $0.55–$0.57, missing Goldman Sachs’ prior estimate of $0.58 and the Street’s $0.59.

Why Juniper Is Better

Jankowski mentioned two key reasons for preferring Juniper to Cisco:

1. Juniper is gaining market share in switching. Juniper’s switching segment grew 10 percent year-over-year last quarter, while Cisco’s declined by 7 percent.
2. While Juniper is also facing soft telecom spending, it is offsetting this with significant exposure to cloud capex. “Cisco, on the other hand, has relatively low exposure to cloud. Indeed, Cisco’s cloud business was flat yoy, in contrast to Juniper noting significant strength in that segment,” the analyst wrote.

At Last Check

• Cisco was down 5.81 percent at $29.74.
• Juniper was down 0.65 percent at $26.07.