Here's Why Juniper Networks Is a Buy

Networking equipment vendor Juniper Networks (NYSE: JNPR  ) has been in the news for the wrong reasons of late. Juniper's hardware has been found to be affected by the Heartbleed Web-security flaw, just like rival Cisco (NASDAQ: CSCO  ) . As reported by Bloomberg, Juniper recently said that some of its networking products, such as routers, switches, and security firewalls, are vulnerable to the security flaw. 

In addition, Juniper recently announced that it will cut 6% of its workforce to streamline its business, incurring related expenses of about $35 million in the recently concluded first quarter. But from a long-term perspective, Juniper still looks like a good stock to invest in. The company has already issued a patch to address the security flaw for its most vulnerable products. Moreover, its focus on bringing out new products should help it fight the likes of Cisco and Alcatel-Lucent (NYSE: ALU  ) in a hotly contested market.

Strong so far
Juniper has done well in recent times on the back of strength in systems, silicon, and software to build customized networks for customers. As a result, its revenue jumped 12% year over year in the previous quarter and earnings increased 59%. Going forward, Juniper is focusing on various aspects to grow its business in network service by building best-in-class cloud solutions and intelligent networks.

Juniper has many strategies in store for 2014. It is focusing on innovation to retain its customer base and attract new customers. In addition, the company is undertaking cost reduction by cutting its workforce at the middle-management level, as mentioned earlier, and spending money only on those product development moves that would lead to long-term gains.

The road ahead
Juniper's new product, the MX104 router, is off to a solid start and the company expects better sales going forward. Strong sales of the EX and QFabric products has led to strong growth in Juniper's revenue, and the company has recorded some more design wins for these products at top enterprise customers and service providers. 

In switching products, the QFX5100 top-of-rack switch is seeing solid adoption, and Juniper expects this product to add more value to its switching product portfolio. But Juniper was slightly disappointed by the weak performance of its products such as T4000 PTX, MobileNext, and ACX. So, it has eliminated the MobileNext suite of products from its portfolio. Juniper is doing the correct thing by removing the underperforming products and is instead focusing on new releases to improve sales.

A look at the competition
The introduction of new products is very important for Juniper as it faces competition from Cisco and Alcatel. But Cisco is not having a good time. After the spying scandal allegations that hurt Cisco's sales, the Heartbleed news comes as a new setback. Cisco's sales in the emerging markets had dropped remarkably late last year. The company was forced to cut its long-term growth forecast to a range of 3% to 6% from the previous 5% to 7% as emerging markets such as Russia and Brazil lost confidence in Cisco's hardware.  

The Heartbleed flaw can further damage Cisco's reputation, and the company is still rolling out fixes for the encryption bug. This could be an advantage for Juniper in the emerging markets.

But Alcatel can be a big threat for Juniper. Alcatel has recently recorded some good wins in the U.S. in the router business. Alcatel had six design wins for its core router products at the beginning of 2013, and ended the year with 20 design wins. The company saw strong growth of 16% in core networking last year, and expects this trend to continue going forward on the back of new products.

Valuation
An impressive thing about Juniper is its valuation. The company's trailing P/E of 28 drops to 13 on a forward P/E basis, indicating earnings growth going forward. The company is slightly expensive than Cisco as far as the earnings multiple goes. But the premium seems deserved as Juniper's revenue and earnings are growing while Cisco is seeing weakness.

Bottom line
Juniper looks well-positioned for long-term growth. The company is cutting costs and introducing new products to improve its financial performance, while rival Cisco's woes can give it room to expand its business further.

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