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The Sweetest Juniper

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Juniper Networks (Nasdaq: JNPR  ) keeps churning out quarter after quarter of solid profits and rising sales, even in the midst of a global financial crisis. But the numbers still aren't good enough on their own to impress investors, and the customer list doesn't help much either. That's a classic setup for mispricing. I smell buried treasure, me hearties.

Last week's earnings report starts out very promising. GAAP Earnings rose 80% year over year to $0.27 per share, and sales took a 29% leap to $947 million. That's worth a swig of grog, landlubber! Mighty rival Cisco Systems (Nasdaq: CSCO  ) surely can't match growth like that on either the top or bottom lines. CIENA (Nasdaq: CIEN  ) comes close, but can't match Juniper's improved margins or its much larger sales. And everyone else, from Alcatel-Lucent (NYSE: ALU  ) to Nortel Networks (NYSE: NT  ) , is having trouble making a profit at all nowadays.

So that's the numbers. Juniper has grown free cash flows by 36% annually over the past five years, and still remains a smallish fish in a very large pond -- with plenty of growth potential up ahead. The stock trades at just under 19 times trailing earnings, making for a value-laden PEG ratio of less than 0.8. So why isn't everybody and their sister buying Juniper right now?

Although Juniper has a few large telecoms like Deutsche Telekom (NYSE: DT  ) and Telecom Italia (NYSE: TI  ) as customers, it still is not as impressive as Cisco. Juniper has to rely somewhat on less-known companies like mail purveyor AmazingMail or Chinese restaurant chain Ajisen. Don't worry if you've never heard of 'em -- neither had I.

It's much easier to impress the market with the kind of big-name contracts Cisco tends to land than with Juniper's ocean of less publicized deals. The management team, including newly appointed CEO Kevin Johnson, also dares to keep a long-term focus, which doesn't please short-term traders. Guidance for the next quarter was mild, though Johnson says that "the long-term growth potential of the high-performance networking market is strong."

Give Juniper a few quarters to follow through on that long-term promise and I think this minimal valuation will take a long sleep in Davy Jones' locker.

Further Foolishness:

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a concise bio. The Motley Fool is investors writing for investors.

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Related Tickers

10/28/2016 9:46 AM
JNPR $26.48 Up +0.29 +1.11%
Juniper Networks CAPS Rating: **
ALU.DL $0.00 Down +0.00 +0.00%
Alcatel-Lucent CAPS Rating: ****
CIEN $19.81 Up +0.26 +1.33%
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CSCO $30.63 Up +0.25 +0.81%
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DT.DL $11.83 Down +0.00 +0.00%
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NT.DL $0.32 Down +0.00 +0.00%
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TI $8.53 Up +0.01 +0.12%
Telecom Italia CAPS Rating: **