A Juniper Networks gateway for connecting networks. Credit: Juniper Networks.
Stock buybacks often don't make sense. So when network equipment maker Juniper Networks (JNPR +0.00%) talked up its multi-year plan to repurchase $2 billion worth of stock, I had to wonder if all that spending was making a difference. Here's what I learned.
A new Juniper
Before we get into the details of the buyback, it's important to understand the context. New CEO Shaygan Kheradpir announced the "capital return" plan in February as part of a broad restructuring that included cost cuts, personnel shifts, and a renewed focus on selling only to the highest-value prospects.
"I joined this phenomenal company as an agent of change to enable Juniper to realize its potential through a more focused, agile, connected, and execution-oriented structure optimized to capture the significant and growing opportunity we see before us," Kheradpir said in a buzzword-laden press release announcing the changes.
Earlier, activist investors Elliott Management Corp. and Jana Partners had put pressure on Juniper to return capital to shareholders, The San Francisco Business Times reports. Kheradpir and his team obliged with the buyback, and a new fresh dividend that yielded 2.10% as of this writing. The spending means Juniper is well on its way to meeting its commitment to shareholders.
"We intend to opportunistically repurchase a minimum of $550 million, in addition to the [accelerated share repurchase], by the end of the year. This means that before year end, we will complete at least $1.75 billion against our commitment to repurchase $2 billion by the end of Q1 2015," Chief Financial Officer Robyn Denholm said in July, according to an earnings call transcript supplied by S&P Capital IQ.
What $2 billion is buying so far ...
Has the spending created value? We don't know the exact timing of Juniper's buybacks, so we can't be sure. All we have are ranges compiled by S&P Capital IQ:
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From February 20, 2014 to March 31, 2014, Juniper repurchased 33.3 million shares for $900 million. (Average price = $27.03 a share.)
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On July 23, 2014, the company concluded the Accelerated Share Repurchase program by spending $300 million for 16 million shares. (Average price = $18.75 a share.)
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From April 1, 2014 to August 11, 2014, Juniper repurchased 28.8 million shares for $599.26 million. (Average price = $20.81 a share.)
Juniper trades for $20.18 as of this writing. During the trailing 52 weeks, the stock has moved between $18.36 and $28.75 a share. There's not much evidence this latest buyback is any more productive than the ones that have preceded it:
| Juniper Networks | Shares Repurchased | Total Spent(millions) | Avg. Purchase Price | Avg. Return on Capital |
|
YTD |
62,100,000 |
$1,499.26 |
$24.14 |
4.9% |
|
2013 |
53,400,813 |
$1,002.05 |
$18.76 |
4.7% |
|
2012 |
36,464,354 |
$1,000.00 |
$27.42 |
3.2% |
Source: S&P Capital IQ.
The good news here is that returns on capital have improved. The bad news is that, looking at the price action during the past two-and-a-half years, there's little reason to believe that buybacks are contributing to the gains:
There's still time for this bet to pay off
Maybe it doesn't matter. After all, Juniper's priority is combating fierce competitors such as Cisco Systems (CSCO 2.63%), which is using its $50 billion cash hoard to buy market share and stiff-arm platform rivals that have proven adept at selling network infrastructure. Kheradpir and his team need to give customers unique reasons to buy if the company is to get back to double-digit revenue growth.
In the meantime, investors could see a boost in the next two or three quarters, as buybacks boost earnings per share. At 451.2 million, Juniper's total shares outstanding were down 11% in the 12 months ending on June 30.
Would you buy on the potential for an earnings bump when Juniper reports third-quarter results on Thursday? Leave a comment below to let us know what you think.
