Earnings Preview: Juniper Networks

Juniper Networks Inc. (JNPR) is scheduled to announce its fourth quarter 2010 results on January 25 after the market closes, and we do not see any variation in analyst estimates at this point.

Third Quarter Overview

Juniper reported modest third quarter 2010 numbers, with earnings per share (EPS) of 26 cents coming in line with the Zacks Consensus Estimate.

Juniper’s reported revenue of $1.01 billion was an increase of 23.0% from the year-earlier quarter. The revenue upside was attributable to strong Product sales in the quarter. Moreover, the company also witnessed an improvement in Services revenue. On an annualized basis, revenues from Product and Service segments climbed a respective 26.4% and 11.3%.

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

Juniper exited the quarter with cash and short-term investments of $2.10 billion, down $2.22 billion from the previous quarter. Cash from operations was $131.4 million, down from $223.9 million in the prior quarter.

Management expects customer demand to remain healthy going forward, which would subsequently drive gains in networking and cloud computing spaces. However, based on strong demand metrics and a healthy business momentum noticed throughout the third quarter and first half of the year, Juniper expects fourth quarter revenues in the range of $1.10–$1.12 billion.

Agreement of Analysts

Out of the thirteen analysts providing estimates for the fourth quarter, only one has revised the estimate upward in the last thirty days, while there was no downward estimate revision. Even for fiscal 2010, there was just one upward revision.

The unchanged estimates point to the fact that there was no major event impacting the company during the quarter. As a result, the analysts are sticking to their estimates projected post third quarter earnings.

Some analysts believe that Juniper’s carrier business has benefited from the increase in demand for its MX 3D routers, which has the potential to generate more business given some old business that it has recaptured.

The company’s ability to meet demand has also played a role. The analysts believe that within the enterprise business, Juniper continues to grow with its EX switch and SRX security platforms.

On the other hand, some analysts are worried about Juniper’s European exposure from where it generates around 29% of the total revenue. It was felt that the prevailing economic turmoil in Europe could keep capex spending under pressure.

Magnitude of Estimate Revisions

Over the last 90 days, the Zacks Consensus Estimate for the fourth quarter has moved up by 100 basis points, while the fiscal 2010 estimate has moved up by 200 basis points. Again, for fiscal 2011, the Zacks Consensus Estimate has been revised upward by 200 basis points over a 90 day period.

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 platforms, 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 #2 Rank.

JUNIPER NETWRKS (JNPR): Free Stock Analysis Report

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