Juniper Networks Down to Strong Sell on Dismal Trends - Analyst Blog

On Dec 20, 2014, Zacks Investment Research downgraded Juniper Networks Inc. (JNPR) to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.

Most of the estimates have been moving downward since this networking solutions provider reported tepid third quarter 2014 results on Oct 23.

Why the Downgrade?

Third-quarter 2014 adjusted earnings per share of 22 cents lagged the Zacks Consensus Estimate of 26 cents per share. Also, the reported earnings were flat on a year-over-year basis primarily due to a lower revenue base, partially offset by expansion in margins and lower operating expenses.

The company's cash and cash equivalents declined to $1.92 billion compared with $2.62 billion as on Sep 30, 2014. Total debt stood at $1.35 billion. The company used $79 million of cash in operations during the quarter.

Juniper expects fourth-quarter revenues in the range of $1.025 to $1.075 billion, down sequentially. The Zacks Consensus Estimate is pegged at $1.055 billion.

A tepid performance in third-quarter 2014 and a not-so-encouraging outlook resulted in downward revisions in earnings estimates for Juniper. The company's tepid guidance was primarily due to weaker-than-expected demand from U.S. service providers.  

Over the last 60 days, the Zacks Consensus Estimate declined 9.4% to 96 cents per share for 2014 and 14.9% to $1.14 for 2015.

Last quarter, the company posted a negative earnings surprise of 15.4%. Moreover, from a valuation perspective, the stock does not look very attractive as it currently trades significantly higher than the industry average based on a forward earnings estimate, which signifies a huge downward potential. Juniper currently trades at a forward P/E of 23.50x as against the industry group average of 6.50x.

Furthermore, competition from Cisco and F5 Networks also remains a concern. Delays in large projects also remain an overhang on the stock.

Stocks to Consider

Not all technology stocks are performing as poorly as Juniper. We recommend Apple Inc. (AAPL), Micron Technology (MU) and Avago Technologies Limited (AVGO), all of which have a Zacks Rank #1 (Strong Buy).