The Sweetest Juniper

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.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 763398, ~/Articles/ArticleHandler.aspx, 12/21/2014 7:55:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement