On Feb 7, 2014, we upgraded our recommendation on Juniper Networks Inc. (JNPR) to Outperform on the back of better-than-expected fourth-quarter results and decent first-quarter guidance provided by the company.
We believe the increased spending by service providers should support Juniper’s near-term fundamentals. The networking solution provider’s expansion into the software-defined networking segment is expected to strengthen its position in the networking space. Moreover, strategic cost-cutting methods and the expected measures to boost shareholder value are the other growth catalysts.
Currently, the stock carries a Zacks Rank #2 (Buy).
Why the Upgrade?
Juniper’s fourth-quarter top- and bottom lines not only beat the Zacks Consensus Estimate but also improved on a year-over-year basis primarily aided by strong contribution from its end markets (service providers and enterprises) and cost rationalizations.
During the quarter, Juniper witnessed higher spending from Tier 1 service provider customers, new design wins across segments and broad-based revenue contributions from customer verticals which led to higher revenues. Lower-than-expected operating costs also led to margin expansions.
Moreover, Juniper provided encouraging first-quarter guidance. The company expects first-quarter revenues in the range of $1.12–$1.16 billion. The Zacks Consensus Estimate for the period is pegged at $1.15 billion. Non-GAAP earnings per share are expected to range between 27 cents and 30 cents, well above the Zacks Consensus Estimate of 19 cents.
Additionally, Juniper witnessed positive estimate revisions for fiscal 2014. Over the last 30 days, there were six positive estimate revisions while only one estimate was revised down. As a result, fiscal 2014 estimate increased 4 cents during the same time frame and now stands at $1.04 per share.
While the company’s new products, cost reduction initiatives and improving execution remain the growth catalysts, increasing competition from Cisco (CSCO), uncertain economic conditions and constricted federal spending are the possible headwinds.
Other Stocks to Consider
Apart from Juniper, investors may also consider stocks such as Broadridge Financial Solutions (BR) and Quantum Corporation (QTM). Both the stocks sport a Zacks Rank #1 (Strong Buy).
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