Earnings Preview: Juniper Networks

Juniper Networks Inc. (JNPR) is scheduled to announce its third quarter 2010 results on October 19 after market closes, and we do not see any variation in analyst estimates at this point.

Second Quarter Overview

Juniper reported modest second quarter 2010 numbers, with earnings per share of 22 cents (excluding one-time items, but including share-based compensation expenses) missing the Zacks Consensus Estimate by 2 cents.

Juniper reported second quarter 2010 of $978.3 million, an increase of 24% from the year-earlier quarter. The revenue upside was attributable to the strength in Juniper’s product sales. On an annualized basis, revenues from the Product segment jumped 27.5% while revenues from the Service segment increased 13.9%.

Juniper generated strong overall gross margin, supported by an encouraging gross margin from the Product segment. Despite a modest increase in operating expenses, the operating margin outperformance was attributable to higher revenue growth.

Juniper exited the quarter with cash and short-term investments of $2.22 billion, down $9.0 million from the previous quarter. Cash from operations in the quarter was $221.3 million, up from $88.5 million in the prior quarter.

Although Juniper did not provide any financial outlook for the third quarter, the company stated that it will remain focused on its operational excellence going forward. Juniper also believes that it is well positioned to capitalize on any improvement in market conditions.

Agreement of Analysts

Out of the fifteen analysts providing estimates for third quarter 2010, none has revised their estimates in the last thirty days. Neither was there any upward nor downward estimate revision noted for fiscal 2010.

The unchanged estimates also point to the fact that there were no major catalysts during the quarter that could drive results. Consequently, the analysts are sticking to the estimates projected post second quarter earnings and are of the opinion that Juniper will deliver third quarter results in line with their expectations.

The key headwind to any upward revision of estimate is Juniper’s European exposure from where it generates roughly 29% of total revenue. The prevailing economic turmoil in Europe could keep capex spending under pressure. However, some analysts remain positive about Juniper’s strong position in its core and edge routing space.

Magnitude of Estimate Revisions

None of the analysts made any change to the third quarter or fiscal year estimates over the last 30 days. Moreover, there has been no change in the Zacks Consensus Estimate for the third quarter or the fiscal year since the second quarter results. The Zacks Consensus Estimate is 26 cents for the third quarter and $1.02 for full-year 2010.

Our Take

Continuous launch of new products and entry into new markets will keep Juniper ahead of its networking peers. We believe that increased spending by key carriers such as AT&T Inc. (T) and Verizon Inc. (VZ), as well as ongoing enterprise share gains, fueled by the EX switch and SRX security platform, will pave the way for healthy profitability, going forward. Moreover, continuous strategic alliances and new acquisitions are also positives for Juniper.

However, stiff competition from industry stalwarts, such as Cisco Systems Inc. (CSCO) and Hewlett-Packard Company (HPQ), as well as Juniper’s European exposure are likely to weigh on the stock.

We currently have a short-term Hold recommendation on Juniper, implying a Zacks #3 Rank.

JUNIPER NETWRKS (JNPR): Free Stock Analysis Report

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