Juniper Networks (NYSE:JNPR), a company that sells networking products, including routers, switches, network management software, network security products, and software-defined networking technology, is set to report its Q3 2023 earnings on October 26 reporting on a period that is likely to see the company post little topline and earnings growth on a year-over-year basis, due to a tough comparison with Q3 2022 which saw the company post record revenues amid easing supply constraints. Moreover, the macro environment is also likely to be less conducive to networking-related spending. We expect earnings to come in at about $0.55 per share, roughly in line with estimates although this would mark a 5% decline versus last year. We estimate that revenues will come in at about $1.4 billion, marking a decline of 2% year-over-year. See our analysis of Juniper Earnings Preview for a closer review of what to expect when the company reports results. So what are some of the trends that are likely to drive the company’s earnings for the quarter?
Amid the current financial backdrop, JNPR stock has seen little change, moving slightly from levels of $25 in early January 2021 to around $25 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. Overall, the performance of JNPR stock with respect to the index has been quite volatile. Returns for the stock were 59% in 2021, -11% in 2022, and -19% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 13% in 2023 (YTD) – indicating an underperformance for the ticker in 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could JNPR face a similar situation as it did in 2023 and lose value over the next 12 months – or will it see a strong jump?
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Juniper has indicated that Q3 is likely to be a weak quarter from a bookings perspective particularly from cloud and service provider customers, as they work through inventory and also as they delay projects a bit due to a mixed macro-economic environment. We will be closely watching the performance of the company’s AI-Driven Enterprise business, which uses a combination of artificial intelligence, and machine learning to optimize user experiences and simplify operations for administration relating to wireless access, and wired access. Over the first six months of this year, the division grew by 55% to $688.1 million. Some other trends that could drive earnings include rising demand for high-speed 400G ethernet network equipment, particularly from cloud and hyper-scaler customers.
We remain positive on Juniper stock, with a $33 price estimate, which is about 27% ahead of the current market price. The stock has underperformed this year, declining by about 19% year-to-date, and trades at just about 11.5x forward earnings. We believe the company could see some upside from its AI-driven deployments and an eventual recovery in enterprise IT spending. Check out our analysis of Juniper valuation: Expensive or cheap for more details on what’s driving our price estimate for Juniper. Also, see our analysis of Juniper Revenue for a look at the company’s key revenue streams and how they have been trending.
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