How Much Can Juniper Return To Shareholders In The Coming Years?

-10.29%
Downside
37.06
Market
33.25
Trefis
JNPR: Juniper Networks logo
JNPR
Juniper Networks

In its earnings at the end of Q4 last year, networking giant Juniper (NYSE:JNPR) announced that it will return 50% of annual cash flows to shareholders through stock repurchases and dividends beginning this year. [1] The company made this announcement after a period of consistent revenue growth and minimal increases in operating expenses leading to healthy cash flows over the years.

Juniper has reported a slowdown in hardware product sales over the last few years, primarily due to falling prices of IT hardware as well as limited growth in demand for networking hardware. Additionally, Juniper’s network security segment has under-performed over the last few years, with the company losing share to competing firms including rival Cisco (NASDAQ:CSCO). On the other hand, Juniper has witnessed strong revenue growth in its services segment, which has grown at a CAGR of over 8% in the last five years. As a result, Juniper’s net revenues grew at a steady pace in the same period. This trend is consistent across IT hardware vendors, with falling prices and lower demand weighing on its top line and margins. Comparatively, the software-defined solutions and services segments have consistently driven top line growth and helped improve margins.

According to an estimate by Gartner, global IT spend declined by around 0.6% to $3.4 trillion in 2016. While the year-over-year global IT spend is expected to return to positive figures through 2017 and 2018, growth is mainly expected from enterprise software (7%) and IT services (4%). [2] Juniper’s management anticipates that this will positively impact the company’s revenue growth and cash flows.

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?

Positive Cash Flow For Juniper

Juniper’s revenues have grown from $4.3 billion in 2012 to just under $5 billion in 2016 – a CAGR of over 3% – in the last five years. In the same period, Juniper’s gross profits also increased at the same rate, with gross margins remaining roughly flat. However, the company carefully managed its operating expenses (R&D and SG&A) over the period, leading to healthier operating profit margins. As a result, the company’s adjusted operating profit grew at a CAGR of 11% from $905 million in 2012 to almost $1.4 billion in 2016. It should be noted that we adjust the operating profit (0r EBITDA) for non-cash items such as depreciation, amortization and share-based compensation expenses.

In the same period, Juniper’s capital expenditures (capex) remained roughly flat at around $200 million, as shown below. The resulting free cash flow rose from $467 million in 2012 to just under $1.1 billion in 2016. Similarly, cash net income was up from under $800 million in 2012 to over $1.1 billion in 2016, as shown below.

jnpr_csh_flw1 From 2012 through 2016, Juniper returned almost $5.4 billion to its shareholders in the form of stock repurchases ($5 billion) and cash dividends ($400 million). Meanwhile, Juniper’s capex declined steadily as a percentage of EBITDA. In the same period, the company’s adjusted EBITDA margin improved from 21% in 2012 to 28% in 2016. Since profit margins consistently improved despite a declining trend in investments, it signifies that many necessary investments to make profits were already in place. This also signals that in absence of high-investment growth opportunities in future years, excess cash generated from operations need not be reinvested at the same rate and can be returned to shareholders.

jnpr_csh_flw2

Future Cash Flow and Returns

We forecast Juniper’s net revenues to continue to grow steadily at a CAGR of 3% from $5.2 billion in 2017 to $5.8 billion through 2021. Similarly, we forecast operating profits to increase at a similar rate from $1.4 billion in 2017 to over $1.6 billion in the next five years, with the adjusted EBITDA margin improving from 27.4% to over 28% by the end of the decade. Over the same time frame, we forecast Juniper’s free cash flow to be in the $900-950 million range as shown below. Given these forecasts, Juniper could return around $460-480 million a year if management decides to continue to return 50% of annual free cash flow.

jnpr_csh_flw3

We have a $29 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

View Interactive Institutional Research (Powered by Trefis):

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

Notes:
  1. Juniper 10-K SEC Filings, SEC, February 2017 []
  2. Gartner Says Worldwide IT Spending Forecast to Grow 2.7 Percent in 2017, Gartner Press Release, January 2017 []