Juniper Earnings Preview: Switching, Services Remain Key To Growth

by Trefis Team
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Juniper Networks (NYSE:JNPR) is scheduled to announce its Q3 2017 results on October 24. In recent quarters, the company has reported sustained growth in the services segment, with double digit growth in services revenues. Juniper has reported a steady revenue increase despite limited growth from its product sales. Moreover, pricing pressure has led to lower gross margins, as shown below.

However, disciplined expense management and improvement in the company’s cost structure led to a 17% increase in Juniper’s non-GAAP operating income, as shown above. The resulting net income and diluted earnings per share also rose at high teens.

We have a $30 price estimate for Juniper, which is around 10% higher than the current market price. Juniper’s stock price fell by 6-7% after the company announced preliminary Q3 results earlier this month, with net revenues missing previous guidance.

See Full Analysis For Juniper Here

Guidance For September Quarter

  • At the end of Q2, Juniper’s management provided revenue guidance of around $1.32 billion for the third quarter. Preliminary results indicate that revenues are expected to be around $1.26 billion, which is a 3% improvement over Q3’16.
  • Juniper’s non-GAAP gross margin for Q3’17 is expected to be around 100 basis points lower than the comparable prior year period at 62%. Management targets a full year gross margin of around 63%.
  • In an attempt to improve profitability and earnings per share, management mentioned that the company aims to improve its cost structure in the coming quarters. Consequently, non-GAAP operating expenses could remain roughly flat over the comparable prior year period at around $500 million.
  • Based on preliminary results, non-GAAP diluted EPS is expected to improve by over 15% to 58 cents a share.

Key Performance Trends

The Switching segment has been a primary growth area for Juniper over the last few years, with revenues growing at a CAGR of 12% from 2011 through 2016. This trend has continued in 2017 thus far, with Juniper reporting a 35% growth in Switching revenues to around $520 million. Recent growth can be attributed to the new QFX and EX product lines driving significant growth.

Similarly, Juniper’s services segment has also continued to contribute meaningfully to top line growth for the company. Juniper has reported double digit annual growth in services revenues in each of the two quarters in the year thus far. In addition to revenue growth, the Services segment has become more profitable for the company. The Services gross margin (GAAP) was up by 60 basis points to 62.9% through the first half of the year, while product gross margins fell.

On the other hand, Juniper’s Routing business has struggled over the last few years, with lumpy demand over the years and minimal revenue growth. Similarly, Juniper has suffered in the network security domain, with a double digit revenue decline over the last few years. In the same period, rival networking company Cisco (NASDAQ:CSCO) reported steady mid-single digit growth in network security revenues.

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