Why Juniper Is Valued Fairly At $25

-10.61%
Downside
37.20
Market
33.25
Trefis
JNPR: Juniper Networks logo
JNPR
Juniper Networks

Networking giant Juniper (NYSE:JNPR) has observed a slowdown in product sales over the last few years, with the services division driving much of the top line growth for the company. This trend is consistent across IT hardware vendors, with falling prices and lower demand weighing on its top line and margins. According to an estimate by Gartner, global IT spend is expected to decline by around 0.5% to $3.49 trillion in 2016. [1] Within Juniper’s product divisions, revenues generated by sales of network switches has driven much of the growth for the company in recent years, while revenues from network security solutions have declined in the same period. In terms of profitability, the services segment has become more profitable for the company while falling hardware prices have compressed the product segment’s margins.

Below we take a look at key growth drivers for the company that justify our $25 price estimate for Juniper, which is in line with the current market price. Juniper’s stock price has fluctuated between $22 and $32 in the last year.

See Full Analysis For Juniper Here

Routers, Security Product Sales Stagnate

Relevant Articles
  1. What To Expect As Juniper Publishes Its Q3 Results?
  2. What’s Driving The Surge In Digital Infrastructure Stocks?
  3. What To Expect From Juniper Networks’ Q1 Earnings?
  4. What’s Happening With Juniper Stock?
  5. Here’s How Juniper Networks Stock Strongly Outperformed The Broader Markets!
  6. What’s Behind Juniper Networks’ Stock’s Strong Underperformance Of The S&P Since 2017?

Juniper’s product divisions include Network Switches, Routers and Network Security & Other Solutions. The combined product sales have growth from $3.5 billion in 2011 to around $3.6 billion in 2015, a compound annual growth rate of under 1%. Routing revenues have grown at about 1% in this period, while switching revenues have surged by 12% as shown in the table below. Network security revenues have fallen at a CAGR of 11% over the last five years as the company has lost significant share to Cisco (NASDAQ:CSCO). Comparatively, Juniper’s services division has witnessed strong growth in the same period, with revenues growing from $1 billion in 2o11 to $1.3 billion in 2015, annual growth of around 7%.

jnpr_stnc

Low product sales have led to discounted selling prices, which ultimately drove down product margins over the last few years. The adjusted gross margin for the product divisions combined has fallen from under 67.6% in 2011 to around 65.3% in 2015. This could further fall to around 61% over the next few years. On the other hand, the company’s services gross margin has improved by almost 4 percentage points due to a higher rate of maintenance contract renewals and a higher proportion of services-based networking solutions on offer.

In the long term, services could continue to drive top line growth for the company. We forecast Juniper’s services revenues to grow at a CAGR of 6% through 2020, while we expect net revenues to grow by only about 3% in the same period. Within the product division, network switches could continue to grow at a fast pace due to Juniper’s strong network functions virtualization (NFV) capabilities and sustained demand for the QFX product line. Comparatively, network security revenues could continue to decline, albeit at a lower pace compared to the last few years. We forecast the services division to continue to drive revenues as well as profits, as shown below.

jnpr_stnc2

See our complete analysis for Juniper

 View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Gartner Says Worldwide IT Spending Is Forecast to Decline 0.5 Percent in 2016, Gartner Press Release, April 2016 []