Juniper Networks, Inc. Beat the Street, but Shares Plunged Anyway

Enterprise-grade network-equipment-builder Juniper Networks (JNPR 0.14%) reported preliminary second-quarter results on Tuesday night. It was a solid report, and management's guidance for the next quarter was right in line with Wall Street's current expectations.

Yet, Juniper shares closed Wednesday's trading session 6.3% lower. What's going on?

Juniper's second quarter, by the numbers

Data source: Juniper Networks.

For what it's worth, your average Wall Street analyst would have settled for adjusted earnings of $0.54 per share on sales near $1.29 billion. On that non-GAAP basis, Juniper's bottom-line earnings rose 24% year over year, to stop at $0.57 per share.

Alongside these results, Juniper also issued the following guidance targets for the third quarter:

• Top-line sales will be approximately $1.32 billion, a modest 2% increase over the year-ago period.
• Adjusted earnings per share should land near $0.58 per share, essentially flat year over year.
• Both of these projections are right in line with analysts' current estimates for the third quarter.

No really -- what's going on?

Some analysts saw the entirely unsurprising next-quarter guidance as a sign that earnings growth is slowing down. Investors started leaning on those research notes on Wednesday morning. Before that, Juniper's haircut had been limited to a 2% share-price drop.

Is there any substance to these slowdown worries?

It's true that Juniper's second quarter was a mixed bag. Thirty-two percent year-over-year growth in sales to cloud-computing customers was balanced out by flat trend lines in the enterprise-and-telecom markets. Likewise, revenue from switching equipment rose 32%, but routers held steady and security sales declined by 12%. The ground is shifting under this Juniper bush, and some investors are getting worried that the company won't be able to manage this market shift.

Image source: Getty Images.

What's next for Juniper?

It's important to note that Juniper's management started targeting the cloud-computing market several years ago. The gains in that sector should come as no surprise, even if it's at the expense of other product types.

"The biggest element of our strategy has been around cloud," said Juniper CEO Rami Rahim in a post-earnings interview with Barron's. "That's not just focusing on cloud providers, but also on cloud as an architectural evolution, as a way of life, that affects each and every one of our customers across every vertical industry."

The company is more than just OK with this market shift -- it's something Juniper is actively striving for.

The stock is trading at a modest 12 times forward earnings and downright affordable 8.5 times trailing-free-cash flows right now. Given that Juniper's management appears to have a solid plan in mind, I think it's time to consider this stock the next time you're looking for a solid investment in the cloud-computing sector. You could certainly do much worse.