Turnarounds are stocks that can often do well in any market environment. I believe that I have a good one for our new selection — Juniper Networks (JNPR), explains Hilary Kramer, editor of Value Authority.
The firm provides a variety of routers, switches and controllers to enable its customers to run high-performance networks. The company has struggled against rivals like Cisco Systems (CSCO) but may now be in the early stages of a turnaround.
One key to the turnaround has been the acquisitions of companies that have improved JNPR’s capabilities in the critical technologies of the future.
In 2019, Juniper acquired Mist Systems for $405 million. Mist Systems’ key technologies enable enterprises to manage their networks on an artificial intelligence (AI) approach which will self-correct errors for maximum downtime.
Juniper further enhanced its artificial intelligence capabilities through the 2020 acquisition of 128 Technology for $450 million. This built on the Mist Systems acquisition by extending the company’s AI capabilities to the cloud.
In November 2020, Juniper acquired Netrounds, a maker of programmable test and assurance services for fixed and mobile networks.
The acquisition will help JNPR’s internet service provider customers offer better services to their customers through providing insights as to where problems originated on a network when it is not operating in a fully optimal matter.
The acquisitions are helping the company meet its objective of offering simplified operations and better end-user experience to its customers.
Juniper has had positive revenue growth for three consecutive quarters and got 2021 off to a strong start with solid results. Revenues were up 8%, driven by strength with service providers, and earnings per share (EPS) increased to $0.30 from $0.23 a share. Orders were strong, and the company grew its backlog.
Most notably, the company indicated that software orders were up 70%, showing good market acceptance for Juniper’s AI offerings. On the earnings conference call, the company also indicated that it is taking market shares in the enterprise segment.
Juniper gave second-quarter guidance for revenue growth of 4.9% to $1.14 billion and EPS of $0.38 vs. $0.35 in the prior year. Given the company’s current momentum, I believe that current EPS estimates for $1.71 vs. $1.55 in 2020 are realistic and could prove to be conservative.
This is not to imply that Juniper is headed for rapid sales growth, as the networking market is already mature. However, these new products are making Juniper more competitive and able to compete with the industry giants.
JNPR should be able to grow sales at least in the low single-digit-percentages, and, combining that with the likelihood of improving gross margins though adding more software in the revenue mix and well-controlled general and administrative expenses, we might see double-digit-percentage EPS growth over the next few years.
What also makes JNPR attractive is its strong balance sheet with little net debt. The company also has a history of good free cash flow generation. These characteristics could potentially make the company a takeover target, especially if the company’s new solutions continue to take market shares.
JNPR is a buy under $28. My $32 target is a reasonable 17X 2022 EPS of $1.90. The 2.9% dividend yield will add to total returns.
