What's Wrong With Juniper?

Curiouser and curiouser! Despite reporting relatively healthier third-quarter earnings last night, Juniper Networks (Nasdaq: JNPR  ) got no love from Wall Street. Quite the opposite, in fact.

 The numbers showed a company riding the same turnaround wave everyone else is enjoying. Sales dropped 13% year over year, but fattened up 5% from the second quarter, landing at $824 million. Pro forma earnings landed at $0.23 per share; that figure was down 28% from the year-ago quarter, but it gained 21% sequentially.

Juniper's stock jumped a couple of percent in after-hours trading, only to fall hard the morning after. That's despite an analyst upgrade, several upward price target revisions on the stock, and a generally positive morning for the market, buoyed by impressive results from Microsoft (Nasdaq: MSFT  ) and Amazon.com (Nasdaq: AMZN  ) . You can't even blame Juniper's slump on a sector effect: Archrivals Cisco Systems (Nasdaq: CSCO  ) and Alcatel-Lucent (NYSE: ALU  ) are beating the market today.

And management comments were positive, too. The clouds around the future are clearing up, giving Juniper a better picture of what's coming. Telecom providers like Verizon (NYSE: VZ  ) are stepping up their orders for network equipment. Internet data traffic should double every two years by Juniper's estimation (and Cisco might concur), mostly thanks to online video and mobile broadband conectivity

The company's brand-new distribution deal with IBM (NYSE: IBM  ) is off to the races, and CEO Kevin Johnson believes that "long-term it's very key, we're making good progress, and I think you will see continued steps forward there. It is a key partnership for us."

Juniper even did its emergency cost-cutting correctly, scaling down its sales and marketing while actually increasing headcount in the all-important R&D side of the business. If you stop innovating in the tech sector, you might as well file for bankruptcy right away. In contrast, Juniper has been hiring engineers over the last year.

Long story short, I can't explain why Juniper is cheaper after this report than it was before. The stock has been beating the market this year, so maybe we're seeing a bit of opportunistic profit-taking. But the long-term health of this business is blatantly obvious, even if Juniper is working in the shadow of mighty Cisco. This industry is big enough for several competitors to prosper.

Do you have a better explanation for Juniper's drop? Maybe a different theory on the company's business prospects? Please share in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Amazon.com is a Motley Fool Stock Advisor pick. Microsoft is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (6) | Recommend This Article (9)

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  • Report this Comment On October 23, 2009, at 5:55 PM, Sgeine wrote:

    I think the issue has always been wall streets complete lack of understanding of this sector and the players involved. Wall Street's always been a cisco cheerleader but when you look at it from the perspective of a network architect like myself who bets my job every day on the performance of the vendors I select it's obvious who the real movers are. For example, in the carrier sector (Sprint, ATT, Time Warner Telecom etc) Cisco has completely ceded this segment to Juniper. The big news is Junipers SRX and EX line of switches and firewalls. The EX line is juniper's first foray into the enterprise market and its a big one. Not only does this line smoke Cisco's entire Enterprise product line (3750, 6500, 7000 series switches) on performance by 3x it's less than half the cost. When you have companies like Sony ditching cisco for juniper in that sector that's serious. The SRX line is another example with Juniper's release of the SRX 5800 line. The biggest firewall cisco produces can handle 40gbps "on paper" (which means half in the real world) while juniper's 5800 can do 160gbps. It's a no brainer...Juniper's on the move and their recent releases have been internally developed and well thought out and integrated with their entire offering. Much more than you can say for Cisco's typical MO of pump and dump with the companies they acquire.

  • Report this Comment On October 23, 2009, at 5:55 PM, Sgeine wrote:

    I think the issue has always been wall streets complete lack of understanding of this sector and the players involved. Wall Street's always been a cisco cheerleader but when you look at it from the perspective of a network architect like myself who bets my job every day on the performance of the vendors I select it's obvious who the real movers are. For example, in the carrier sector (Sprint, ATT, Time Warner Telecom etc) Cisco has completely ceded this segment to Juniper. The big news is Junipers SRX and EX line of switches and firewalls. The EX line is juniper's first foray into the enterprise market and its a big one. Not only does this line smoke Cisco's entire Enterprise product line (3750, 6500, 7000 series switches) on performance by 3x it's less than half the cost. When you have companies like Sony ditching cisco for juniper in that sector that's serious. The SRX line is another example with Juniper's release of the SRX 5800 line. The biggest firewall cisco produces can handle 40gbps "on paper" (which means half in the real world) while juniper's 5800 can do 160gbps. It's a no brainer...Juniper's on the move and their recent releases have been internally developed and well thought out and integrated with their entire offering. Much more than you can say for Cisco's typical MO of pump and dump with the companies they acquire.

  • Report this Comment On October 23, 2009, at 7:23 PM, yzhao17 wrote:

    man, read a book.....find this: "Sell the news", it will explain why the drop.

    Stock prices are base on what? EPS? NO! It is based on the HOPE of getting a good earning. Once you see the real earning, the HOPE power is done. Time to sell, push the price to the floor....then look to see if there will be any HOPE at that time....

    :)

  • Report this Comment On October 23, 2009, at 7:50 PM, DrBob66 wrote:

    I wonder... was the author buying JNPR shares yesterday (or even today)? More likely he bought at beginning of the year...and now he's scratching his head, wondering why his stock is only up 57%. Maybe you should think about taking some profits here, no? Or did you think the stock was going to rocket up 10% just because they beat the "consensus" by 10%? Is that how you think the market works? Oh wait...the stock WAS up 8% from yesterday's closing price (in the morning). And then traders took some profits. Not a bad idea, imo, especially when the stock is currently trading at 27 times NEXT YEAR'S avg. earnings estimates. I don't own the stock...but if I did, and I saw target prices of $27 and $28 from analysts at S&P and CS (and a "sell" rating from Schwab, for what that's worth), and the stock was trading at $28 after an "okay" earnings report, that would be my cue that it's time to sell some.

    Take profits, and go out and spend some of your winnings. Buy something. The economy needs your help.

  • Report this Comment On October 25, 2009, at 7:40 AM, TMFZahrim wrote:

    Full disclosure, Dr Bob: this Fool has never held any position in JNPR, long or short. Nor have I owned or shorted CSCO, ALU, or any other networking outfit. Okay, I own AKAM if that counts -- but I don't think so.

    Cheers,

    Anders

  • Report this Comment On October 26, 2009, at 12:43 PM, ALDink wrote:

    I "heard" two things from Juniper's CEO that may have rattled WS.

    1. Their architecture was pinned to some yet to be announce technology... meaning no real product for at least 9 months resulting in at least 3-4 quarters of stalled sales.

    2. They have no M&A intentions (organic R&D).

    So while everyone else is running towards the recovery, bolstering their position and their revenue streams, JNPR is walking.

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