3 Reasons to Buy Juniper Networks Inc. on the Pullback

Juniper recently received a downgrade from Mizuho, but investors should focus on the long run.

Jun 24, 2014 at 7:02AM

Networking equipment vendor Juniper Networks (NYSE:JNPR) was downgraded from "outperform" to "neutral" by Mizuho last week. The analyst firm attributed softness in capital spending by Juniper customers such as AT&T (NYSE:T) and Sprint (NYSE:S) in the short term as the reason behind the downgrade, sending the company's stock lower. From a long-term perspective, however, Juniper looks strong. The recent weakness in the company's share price is an opportunity to pick up some shares. Let's see why.

A consistent performer
Juniper performed consistently in the last year, posting solid results and beating consensus estimates in the past four quarters. The recently reported first quarter was no different, as the company's revenue increased 10% year-over-year to $1.17 billion to beat the Wall Street estimate of $1.15 billion. 

The company reported non-GAAP net income of $142.6 million, or $0.29 per share for the first quarter; this was an increase of 21% from the prior-year period. Even Juniper's outlook was strong, with the company expecting revenue between $1.2 billion and $1.23 billion, which is better than the expectation of $1.21 billion. Its earnings are expected to be in the range of $0.36-$0.39 per share, again better than the $0.36 per share estimate. 

Juniper is focusing on cutting costs and is coming out with innovative products to fuel growth. This is evident from the company's financial performance. A glance at the company's strategies and long-term prospects will reveal why it is worth buying on the pullback.

Growth prospects
Juniper is working with AT&T on its Domain 2.0 vision to deploy a user-defined network cloud. Earlier this year, AT&T said that it will start rolling out software-defined networking, or SDN, and other network virtualization functions under the Domain 2.0 program to power next-generation networks. The move to a cloud-based network by AT&T will be a catalyst for Juniper, as the company specializes in providing products and services for high-performance networks.

AT&T is looking to improve its hardware and software features while also improving the management of functionality in the software layer. In addition, the carrier will try to deliver security, performance, and reliability to users, apart from tapping new services and apps. Since Juniper focuses on both the hardware and software sides of the networking spectrum, it will be able to partner effectively with AT&T on this initiative.

Moreover, Juniper is witnessing robust demand from service providers across the Web 2.0 platform, along with carriers in all geographies. Enterprise customers should also help it capture share in the significant and high-growth segment for its cloud-builder and intelligent networking services across the globe.

Juniper is trying to bring more customers into its fold by delivering a solid value proposition to attract customers that demand highly scaled, sophisticated, secure, automated, context-aware networks and cloud environments. These applications require core routing solutions, switching, security, virtualization capabilities, network intelligence, and control to work together in an open framework.

To benefit from these applications, Juniper has implemented a One Juniper structure to create a more focused, connected, agile, and execution-oriented company. This strategy focuses on diversification of its revenue, accompanied by a sharp focus on a set of targeted customer segments that are in the build cycle for intelligent networks and cloud environments.

LTE opportunity
Management expects that Juniper's detailed execution plan of for de-layering, automation, and focused innovation will strengthen the company by applying its resources to high-growth areas of the market.

One such opportunity is in 4G LTE, where Juniper's optical products should see strong demand. AT&T is aggressively deploying its LTE network in the U.S., and Sprint has also joined the race. Moreover, there are reports that Sprint and T-Mobile, the third and the fourth largest mobile networks in the U.S., will merge to create a telecom powerhouse.

Sprint's LTE network reaches 225 million people so far, less than both AT&T and Verizon. T-Mobile covers an identical number of customers with its 4G service, so it can be expected to step on the gas as well. Sprint is planning to go for aggressive deployments of its faster network going forward. It will push its enhanced LTE service, known as Sprint Spark, to more than 100 million users by the year end. This expansion will require capital investments and should result in higher orders for Juniper.

The bottom line
Investors need to look beyond any short-term pain that Juniper might face and instead focus on its long-term prospects. The company should benefit from growth in cloud infrastructure and the deployment of LTE networks. At a forward P/E of just 12, it looks like a solid investment.

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Mukesh Baghel 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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