Juniper Showcases Growth Potential Despite Lackluster Guidance

Juniper (NYSE:JNPR) was able to beat market expectations with its stellar Q4 performance, but its stock fell 10% after hours as the company issued weaker-than-expected guidance. Juniper cited near-term uncertainty in the global macroeconomic environment and sluggishness in customer investment patterns as the main reasons for its lackluster guidance. While several investors took this as a sign of a short-lived recovery, we believe that the company still has substantial growth opportunities going forward. Global industries are rapidly shifting to the cloud, and software defined networking (SDN) is gaining steam, and Juniper appears well equipped to respond to these trends. During the quarter, the company remained proactive in introducing improved products across the board, which received strong response in the initial phases. It also made a strategic acquisition recently to bolster its optical and SDN capabilities. Security was a cause for concern for Juniper for a while, but it seems to have finally stabilized this segment of its business as well.

Our $28 price estimate for Juniper is about 10% above the current market price. However, we are in the process of updating our model in line with the recent earnings release.

See our full analysis of Juniper Networks

Q4 Earnings Highlights

Juniper’s net revenues for the quarter increased 20% year over year (y-o-y) to $1.32 billion with 24% growth in routing revenues and 21% growth each in switching and security. Services revenue growth was comparatively slower, yet still significant at 12%. The company’s non-GAAP operating margins expanded 330 basis points y-o-y to 24%, and non-GAAP net income totaled at $2.03 billion, which was y-o-y growth of 40%. Excluding certain items, earnings per share reached $0.63, which was ahead of Juniper’s initial guidance of $0.60. Even net revenues were slightly above the high of Juniper’s guidance. ^[1]

Lackluster Guidance

After reporting promising results for the fourth quarter, Juniper disappointed many with its guidance for the first quarter of 2016. For the first quarter, the company expects to generate revenues in the $1.15-$1.19 billion range, with EPS at $0.42-$0.46. Analysts had predicted these figures to be $1.19 billion and $0.47, respectively. ^[2] Juniper mentioned that the volatility in the global economy and lumpy customer investment are responsible for its conservative outlook. Also, with the U.S. dollar expected to remain strong, revenues coming in from international markets will likely be adversely affected. However, it should be noted that Juniper’s guidance hasn’t missed estimates by much, so this guidance isn’t as big a surprise as the stock movement suggests.

Juniper’s Core Remains Strong

Innovations have taken the networking industry by storm, with SDN becoming a widespread reality and showing a lot of potential in terms of scalability. Juniper has progressed well on this front by developing and offering software layers and virtual switches for white-label hardware. Most recently, the company dissaggregated its networking OS Junos from its hardware, to allow third party hardware to use Juniper’s software platform and vice versa. While Juniper has embraced the change in industry requirements, its competitor Cisco (NASDAQ:CSCO) is still very much fixated to selling its complete proprietary solutions. This provides Juniper an opportunity to secure a competitive advantage, assuming it is able to offer compelling security features. To this end, the company mentioned that it is proactively investing and innovating in the security domain to maintain the integrity of its products. Significant growth in security revenues during the fourth quarter is an indication that Juniper is beginning to see some success with its investments.

Juniper has been bolstering its product range consistently with the addition of new products with better features and utility. During the fourth quarter, the company introduced as few new products such as ATX-500 hardened access switch, the GFX-5200 top-of-the-rack data center switch, the SRX 500 security platform and MPC7, the new-gen MX Line Card. Just recently, the company made a crucial acquisition in BTI Systems, a company specializing in hardware and software defined networking tools in the optical equipment domain. Juniper believes that by integrating its IP routing platforms and data-center switching with BTI’s cloud and metro networking systems, it can create a cost efficient packet optical networking platform and provide open software driven solutions. ^[3] We believe that despite the short-term headwinds, such innovations and subsequent progress on the SDN front can help Juniper sustain its growth in the long-run.

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More Trefis Research

1. Juniper Networks Reports Preliminary Fourth Quarter and Fiscal Year 2015 Financial Results, Juniper, Jan 27 2016 [↩]
2. Juniper Networks Tops Estimates But Warns Of Uncertainty, The Wall Street Journal, Jan 27 2016 [↩]
3. Juniper’s Q4 fiscal 2015 earnings transcript, Jan 27 2016 [↩]