Why Juniper Stock Looks Undervalued Despite Outperforming The Broader Market

by Trefis Team
+6.22%
Upside
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Trefis
JNPR
Juniper
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Despite remaining flat since the beginning of this year (vs. a 7% decline in S&P 500), we believe that Juniper’s stock (NYSE: JNPR) is likely undervalued at the current price of $24 per share and it has a decent upside. The key is Juniper’s stock is still 9% lower than it was at the beginning of 2019 and almost 13% lower than it was at the starting of 2018, a little over two years ago. Our dashboard, ’What Factors Drove -12.9% Change In Juniper Networks Inc Stock Between 2017 And Now?’ provides the key numbers behind our thinking, and we explain more below.

Some of the stock price decline over the last two years is justified by the roughly 11.6% fall in Juniper’s revenues from 2017 to 2019. However, this decline was partially offset by an increase in the net income margin from 6.1% in 2017 to 7.8% in 2019. This, combined with a 9.1% reduction in share count (due to stock repurchases worth $2 billion), helped Juniper’s EPS surge by over 25% during this period. Notably, Juniper has about $1.9 billion in cash and cash equivalents as of the last report, and the company will very likely continue to buy back shares as it still has around $1.5 billion remaining under its share repurchase program, and appears to be in a strong financial position despite the impact of the coronavirus outbreak on the economy.

However, a sizeable drop in Juniper’s P/E multiple has more than offset the gains to its stock from an upbeat earnings trend. The company’s P/E multiple dropped from 34.4x at the end of 2017 to 24.2x by the end of 2019. Moreover, Juniper’s P/E is down further to about 24x now. This reflects a 30.1% decrease in P/E multiple from December 2017 to June 2020. We believe there is a potential upside for Juniper’s multiple when compared to levels seen over recent years – especially the P/E figure of 34x as recent as in late 2017.

How Is Coronavirus Impacting Juniper’s Stock?

The global spread of coronavirus has led to lockdowns in various cities across the globe, which has affected industrial and economic activity. However, the Covid-19 pandemic did not have a substantial impact on Juniper’s operations, as is evident from its Q1 2020 results. In fact, digital usage got a real push as most employees are working online from home. Even brick-and-mortar companies have been forced to experiment with the digital channel. This has expanded the company’s offerings for security solutions as well as cloud application services. The crisis has highlighted the importance of investment in technologies like cloud, data, and cybersecurity. As a result, the company mentioned it entered the second quarter with a stronger backlog and a healthy momentum in its Cloud and Service Provider verticals. This is primarily why the company has outperformed the broader market since the outbreak of coronavirus.

Although disruption in Juniper’s supply chain could adversely impact the company’s revenues in the near term, the company has seen some improvement in its manufacturing capacity that could help the company overcome this problem over the course of the year. Therefore, we believe the company is in a better position than other companies to face the repercussions of the outbreak – also given its strong cash position and niche business model. That said, if there are early signs of abatement of the crisis, the company’s stock could see a modest uptick. Going by historical trends, we believe that the company’s stock is currently oversold and offers potential upside returns.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

Another Opportunity: Juniper’s Peer, Cisco’s P/E Multiple Is At The Lowest Level In 3 Years: Time To Buy Cisco Stock?

 

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