Can Juniper Ever Prove the Doubters Wrong?

If it's not one thing with Juniper (NYSE: JNPR  ) , it's another. It seems no matter how much I've wanted to like this company, there's always something standing in the way. While Juniper always has an interesting portfolio of products that suggests strong growth should be expected, the company hasn't been able to penetrate the enterprise and seek new end markets in the manner of Cisco (NASDAQ: CSCO  ) .

What's more, soft carrier spending has kept the stock in a holding pattern for almost a year. Plus, there are now questions about the company's commitment to its business since it was revealed that management unsuccessfully tried to sell off assets to some of its rivals. Making matters worse, the stock is not cheap -- trading at a P/E of 55 compared with Cisco's P/E of 12. And for Juniper to overcome doubt, the company has to do better than just 2% revenue growth posted in the recent quarter.

When it rains, it floods
The bad news continued on Tuesday, as the stock took another beating, losing more than 5% after Goldman Sachs downgraded the company to "sell," while citing competitive and disruptive pressures. In her research note, analyst Simona Jankowski stated, "We have greater concerns about Juniper's ability to execute in an environment marked by more rapid disruptive change and heightened competition."

She's absolutely correct in her view -- albeit, a little late. In fact, this has been the ongoing concern about Juniper, which we recently discussed. Juniper is now in a competitive disadvantage not only against F5 Networks (NASDAQ: FFIV  ) , but also new entrants such as Palo Alto Networks and other rivals gunning for leadership in software-defined-networking, or SDN, platforms. Jankowski also cited Juniper's instability within leadership. She suggested that the higher-than-average senior management turnover over the past three years will affect "the balance sheet from the accelerated pace of recent acquisitions." She's right again, as this level of turnover brittles the company's structure.

It's the carriers, stupid!
Juniper investors often cite the rebound in carrier spending as the next catalyst, while suggesting that it's the carriers' fault that the company has been such a disappointment. I think that's a pretty big stretch. While networking/security sector often trades in tandem, we can see that Cisco hasn't experienced similar struggles.

Besides, let's assume that were the case. It would imply that Juniper has an overreliance on an industry it can't control. For that matter, management has failed to properly diversify the company. What's more, that two-thirds of Juniper's revenue comes from carriers is a major concern. Conversely, that's not the same scenario for Cisco, which has much stronger exposure in the enterprise and thus is able to offset any weakness.

That's not to say, however, that Cisco won't rejoice when Verizon and AT&T open their wallets. A rebound will certainly help Juniper, and industry experts believe that it will happen. But getting the timing right has been difficult. But Juniper still has to answer for the competition. And specifically, F5 and Riverbed Technology, which are also waiting and salivating for a recovery.

Investors need proof of life
Despite these struggles, there is the strong belief that Juniper will turn things around. I just don't trust that the company has the current management in place to put Juniper back on its growth path. The good news, though, is that Juniper has some product launches on the horizon that can potentially revive optimism -- one of which is the company's new PTX switches, which has garnered some great reviews. However, though, it's unclear whether these new products will be enough.

The competition plans to launch attacks of their own. Riverbed is one example. The company's acquisition of OPNET, which is growing at a 30% rate should eventually pay off. This will put Riverbed in a better position to steal share from Juniper, while also fighting off Cisco. Meanwhile, F5 has been making moves of its own -- picking off LineRate, a developer of SDN services.

However, Juniper's management, despite recent cost-cutting efforts, has not shown that it's ready to give up. That the company just spent $176 million for Contrail Systems, which then followed the acquisition for enterprise security software company Mykonos, means there is still some fight left. While these moves are steps in the right direction, it doesn't effectively address Juniper's enterprise software position.

What of the stock?
It's still too expensive. There's no other way to say it. But if Juniper can effectively find synergies for its recent acquisitions, while also making fundamental improvements, there may be some life. And if management can take it a step further by reducing the dependency on carriers, this stock may work. But these are some pretty big "ifs." For now, however, I doubt it.

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