Juniper Networks Inc. (JNPR) is scheduled to announce its first quarter 2011 results on April 19 after the market closes, and we do not see major variation in analyst estimates at this point.
Fourth Quarter Overview
Juniper reported modest fourth quarter 2010 results — Earnings per share (EPS) of 42 cents that comprehensively beat the Zacks Consensus Estimate.
Juniper reported fourth quarter 2010 revenue of $ 1.19 billion, up 26.4% from the year-earlier quarter. The revenue upside was attributable to strong Product sales in the quarter, which increased 30.2%. Moreover, the company also witnessed an improvement in Services revenue, which was up 12.5%.
Juniper generated good overall gross margin, although it tumbled slightly on a year-over- year basis, supported by an encouraging gross margin from the Product segment. Service segment gross margin, however, tempered down to some extent. Although there was a modest increase in operating expenses, the operating margin out performed based on higher revenue growth.
Juniper exited the quarter with cash and short-term investments of $ 2.29 billion, up from $ 2.10 billion from the previous quarter. Cash from operations was $ 371.0 million, up from $ 131.4 million in the previous quarter.
Management expects customer demand to remain healthy going forward, which would subsequently drive further gains in the networking and cloud computing space. For this purpose, Juniper expects to launch new security, routing and switching products in fiscal 2011.
However, the company faces stiff competition from Chinese networking companies, which is expected to temper earnings going forward. Juniper expects first quarter revenues in the range of $ 1.06–$ 1.11 billion.
Agreement of Analysts
Out of the thirteen analysts providing estimates for the first quarter, only one analyst revised estimates downward in the last thirty days, while there was no upward estimate revision. Even for fiscal 2011, only one analyst revised estimates downward.
The Zacks Consensus Estimate remained unchanged, however, pointing to the fact that the company’s strong fundamentals remain intact. As a result, the analysts are sticking to their estimates projected post fourth quarter earnings.
Some analysts believe that there may be near-term growth in North America as service providers like Verizon Inc (VZ) boost investments in core routing to deliver 100GbE in some selected regions. This analysts expect that it will generate strong demand for the company’s T-Series and MX3D routers.
Some of the analysts expect negative impact from Japan as NTT’s spending has stopped due to the recent natural disaster that the company faced. However, the impact from the recent tragedy in Japan is expected to be partially offset by the increase in spending in the second quarter.
In the enterprise market, some analysts expect the company to grab market share primarily through favorable pricing. However, a recent study by some analysts indicates a decline in momentum for switching and routing solutions as they expect that 60% of IT managers are expected to upgrade their switching technology to a new level.
On the other hand, some analysts are worried about Juniper’s European exposure, which generates around 29% of the total revenue. The prevailing economic turmoil in Europe could keep capex spending under pressure.
Magnitude of Estimate Revisions
Over the last 90 days, analysts have revised their estimate downward by 2 cents for the fourth quarter, while for the same period, the fiscal year 2011 the estimate has inched down by 1 cent.
Our Take
The 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. 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 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.
Juniper has a Zacks #3 Rank, implying a short-term Hold rating on the stock..
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