3 Reasons Juniper Networks Looks Like a Great Value

This company is growing faster, retiring shares, and now pays a dividend.

Mar 11, 2014 at 7:00PM

Sometimes it takes a kick in the pants for a company to reward investors appropriately. With Elliot Management holding roughly 6% of Juniper Networks (NYSE:JNPR) shares, the company seems to have finally gotten serious about returning cash to shareholders. In fact, the company's new capital allocation strategy represents two of the three reasons that Juniper looks like a great value today.

The most obvious move
Many companies have finally realized that paying a dividend to shareholders is a sensible way to use their excess cash. The first reason Juniper looks like a great value is the company recently announced it would begin a $0.10 per quarter dividend beginning in the third quarter of 2014.

When it comes to a few of Juniper's peers in the networking business, some have already taken this dividend step, others can't afford a dividend even if shareholders demanded one. For instance, Ericsson (NASDAQ:ERIC) just proposed a dividend equivalent to a better than 3% yield for this year. On the other hand, Nokia Corporation (NYSE:NOK) may pay a special dividend from its recent asset sale, but an ongoing dividend is unlikely.

One thing that dividends tend to do is diversify the ownership base of a stock. Investors who need income may have ignored Juniper and now can consider the shares. Generally speaking, the more diverse the ownership base is, the less volatile the stock. In addition, with a proposed yield of about 1.5%, Juniper theoretically will have some sort of floor to the shares because of the payout.

While a 1.5% yield may not seem that exciting, keep in mind even a 10-year Treasury bond is only yielding 2.8%. Juniper's new dividend suggests a core-free-cash-flow payout ratio of about 51%. Since the company says its "intention is to raise it over time," shareholders should be pleased with this starting point.

Goodbye to 15%?
The second reason Juniper looks like a great value has to do with the company's very aggressive share repurchase plans. As part of its new capital allocation plan, Juniper reported it would institute a share repurchase program of $2 billion over the next year or so.

With around 500 million outstanding shares, at current prices these share repurchases could potentially retire as much as 15% of the company's float. Needless to say, with 15% less shares, Juniper's earnings-per-share growth should significantly outpace the company's net income growth.

This share retirement plan would be a ten-fold increase over last year's share repurchases, as Juniper's diluted shares declined by 1.5% during this timeframe. Both Ericsson and Nokia saw their diluted shares increase slightly in the last year. Given Juniper's existing outperformance when it comes to share repurchases, it seems this gap is going to widen even further between the three companies.

Winning in a rout
One of the most significant differences between Juniper and its peers is the company's growth rate. In fact, Juniper's revenue and earnings growth is the third reason the shares look like a good value.

In the current quarter, Juniper's revenue increased by 12%, whereas Ericsson posted flat sales, and Nokia's continuing sales declined by 21%. To make the comparison even starker, consider each of these company's largest revenue contributors.

Company

Largest Revenue Contributor

Revenue Growth or Decline

Ericsson

Networks (52% of revenue)

Down 1%

Juniper

Platform Routing (48% of revenue)

Up 17%

Nokia

Nokia Solutions and Networks (89% of revenue)

Down 22%

Source: SEC Filings

As you can see, not only is Juniper growing its top-line faster than its peers, but its most significant revenue contributor is growing much faster.

The bottom line is, with a newly minted dividend, a huge share repurchase on the way, and fast revenue growth, Juniper looks like a great value at today's prices. I would suggest growth and now income investors add JNPR to their personalized Watchlist today.

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Chad Henage has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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