Juniper Ntwks Up Against CSCO
Juniper Networks, Inc. (JNPR) is enjoying robust growth in its infrastructure business as service providers spend on next generation networks. The company is well-positioned in the router business.
Although its SLT business has been disappointing as it has yet to gain strong traction in the enterprise market, we believe the service provider market will be enough to sustain recent momentum. In light of this, we maintain a Hold recommendation on the shares of JNPR.
Juniper faces stiff competition in each of its market segments, especially from industry leader Cisco Systems (CSCO), which continuously implements product upgrades and follows an aggressive marketing strategy, creating considerable pricing pressure on its competitors. Moreover, Juniper is also exposed to customer concentration risks.
Shares of JNPR are currently trading at a P/E multiple of 23.3x our 2008 earnings estimate of $0.97. With renewed strength in the service provider market and a forecast for expanding margins, we believe the company is one of the best positioned in the industry. We set a price target of $24.00, which represents a P/E multiple of 24.7x 2008 earnings estimates.
Land Driller Grey Wolf a Buy
We are maintaining our Buy recommendation and raising our estimates and price objective for Grey Wolf, Inc. (GW) shares following the board of directors' refusal of Precision Drilling Trust's (PDS) unsolicited $9.30 per share bid.
We agree with the board's assessment that the company's pending merger with Basic Energy Services, Inc. (BAS) offers better value for shareholders. Following completion of the merger, the company will be fairly diversified, both in terms of operations as well commodity-price exposure, and enjoy scale economies.
The improving natural gas price outlook has significantly improved the prospects of the land drilling market. Grey Wolf remains well-positioned to capitalize on the improving operating environment given its large idle capacity, which gives it exposure to the rising spot dayrates. In addition, Grey Wolf is buying back $150 million worth of its own stock.
We continue to like Grey Wolf shares for the company's significant leverage to the improving outlook of the onshore drilling market and its attractive valuation. Despite its recent strength, the stock is still trading at a significant discount to its peers despite its relatively modern and capable fleet. Our unchanged new $11 price objective, raised from $8 before, reflects 2009 P/E, P/CF, and EV/EBITDA multiples still below the peer group's average, respectively.
Nice Price on Investors Real Estate
We are maintaining our Buy rating on Investors Real Estate Trust (IRETS) due to valuation and yield. In addition, the company has assets in the upper Midwest, an area that has not gone through the boom and bust cycle of overheated Costal markets.
The company recently raised its quarterly dividend, 0.3% from the previous quarterly payout. The yield is 6.6%, well above peer group averages. IRET recently acquired a portfolio of medical properties at high initial yields which should be accretive to 2008 earnings.
On a P/FFO basis, the company is trading at an approximate 27% discount to office REITs, and a 25% discount to multi family REITs in the Zacks coverage universe. Due to recent share price increases, the company is trading right at our net asset value (NAV) estimate. The current discount gives the shares good downside protection. We are slightly increasing our target price to $11.00 per share or 12x 2008 estimates.
Lear Corp. Tightening the Belt
Lear Corporation (LEA) is one of the largest independent automotive parts suppliers in the world, with a 9% global share. The company has undertaken a restructuring drive to contain its costs and streamline operations.
Lear's expanding relationships with Hyundai, Toyota Motor Corp. (TM) and Nissan Motor Corp. (NSANY) are expected to drive revenues from Asia.
