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Should Investors Buy The Dip In Juniper Networks? The Street Debates

ANET, CSCO, JNPR | January 30, 2019

Juniper Networks, Inc. (NYSE: JNPR) reported preliminary fourth-quarter results Tuesday that came in below expectations and were delivered alongside a concerning outlook. Here's how five analysts reacted.

The Analysts

Wells Fargo's Aaron Rakers maintains a Market Perform rating on Juniper Networks with an unchanged $27 price target. Morgan Stanley's James Faucette maintains at Underweight, unchanged $20 price target. MKM Partners' Michael Genovese maintains at Neutral, price target lowered from $29 to $27. Raymond James' Simon Leopold maintains at Outperform, price target lowered from $30 to $28. KeyBanc Capital Markets' Alex Kurtz maintains at Sector Weight, no price target.

Wells Fargo: 5 Items That Matter Most

Juniper's announcement shifted the company to a "prove-it story" over the coming quarters, Rakers said in a Wednesday note.

The analyst's five primary takeaways were:

Q4 cloud revenue was down 8 percent both year-over-year and quarter-over-quarter, and new use cases are needed to hit growth targets.
Changes to the sales force present a near-term challenge.
The switching business was mixed, with the Ex-series showing growth and the QFX product family declining.
An accelerated share repurchase program was announced.
Security revenue grew 34 percent sequentially, and the company highlighted an uptick in deals worth more than $1 million in the quarter.

Morgan Stanley: Remaining Growth Driver Is Slowing

Juniper's cloud/hyperscale segment is both "elusive" and "discouraging" after management said it needs new use cases to hit its growth targets, Faucette said in a Wednesday note.

The service provider business declined 11 percent, which was worse than the negative 5 to negative 1 percent expected; and the timing for any boost from 5G remains unclear, the analyst said.

Enterprise — Juniper's only growth vertical — will likely slow throughout a challenging 2019, Faucette said. It likely benefited in 2018 from a strong IT spending environment and the end stages of upgrade activity, he said.

MKM: Routing 'Not A Winning Category'

Routing is "not a winning category" due to concerns about the secular outlook from virtualization, Genovese said in a Wednesday note. The company's cloud routing business isn't looking attractive either, with too much secular pricing pressure, he said, adding that expectations for it to come "storming back" in 2019 or 2020 are unrealistic.

Raymond James: Road To Recovery Exists

Juniper's sales miss and poor guidance are certainly "disappointing," but there is still a "road to recovery," Leopold said in a Tuesday note. The company expects to see growth from cloud spending, and investors shouldn't lose faith in this vertical, he said.

Upcoming earnings reports from web scale operators could "restore hope" that cloud spending trends are still growing, although at a decelerated pace, the analyst said.

Other opportunities include foundational 5G mobility spending, 400G in the data center, increased software traction and a refresh to Juniper's security platform, in MKM's view.

KeyBanc: Impact On Other Names

Juniper's enterprise segment showed signs of strength, which likely signals stable demand for general networking spend and may readout as a positive for Cisco Systems, Inc. (NASDAQ: CSCO), Kurtz said in a Tuesday note.

The readout to Arista Networks Inc (NYSE: ANET) is less certain, as spend across different layers of the network stack vary from quarter to quarter, the analyst said.