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Juniper Dazzles

By now, you will have heard the news. Network equipment maker Juniper Networks (Nasdaq: JNPR  ) delivered second-quarter results late yesterday that trounced Wall Street profit and sales estimates, driving up the price more than 13% this morning to $24.91.

Indeed, the results are dazzling. Juniper posted profits of $42.7 million, or $0.08 a share, excluding one-time expenses. That's up from $13.6 million a year ago. Meanwhile, revenue soared 86% to $307 million.

With plucky numbers like that on display, it's hard to argue with the market's enthusiasm for Juniper. On paper, Juniper looks great. But what goes unpublished matters, too. There are reasons to think twice before loading up on Juniper at today's price.

For starters, Juniper's chief financial officer has decided to step down. Sure, he plans to stay on at the company, but his departure from that senior position could signal bad news. While the resignation may be completely innocent, this one demands closer inspection.

Conspicuously absent from Juniper's Q2 statement was any mention of how the company plans to take on its big rival, Cisco Systems (Nasdaq: CSCO  ) . As I pointed out in my recent commentary, they are battling for a share of the core router market, selling electronic devices to corporations and telecom carriers that direct Internet data traffic over networks. Cisco recently unveiled its huge, fast router (HFR), a hand-end product that poses a real threat to Juniper in the high end. There is also Nortel (NYSE: NT  ) and Lucent (NYSE: LU  ) to contend with.

Juniper says its board has authorized a stock repurchase program of as much as $250 million. You can interpret that move two ways. It might simply mean that Juniper thinks its shares are cheap and that it's putting its money where its mouth is. Another reason to consider: To keep its shares afloat, Juniper needs to reduce potential share price dilution created by generous employee stock option plans.

Juniper is not in trouble. Not by a long shot. But call me grumpy: The stock trades at more than 60 times 2004 earnings and 45 times 2005 earnings. No other networking industry player, besides Qualcomm (Nasdaq: QCOM  ) , trades at such high multiples. Despite the strong second-quarter results, it doesn't look like a good bet here.

Do you share Ben's opinion of Juniper? Talk about it on the Fool's Juniper discussion board.

Fool contributor Ben McClure hails from the Great White North. Ben doesn't own any shares mentioned here.

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