Juniper Spending May Slow
Juniper Networks, Inc. (JNPR) is enjoying robust growth in its infrastructure business as service providers are spending on next generation networks.
Although results have been good, we are growing increasingly concerned about levels of capital spending by service providers in light of indications that spending could be slowing. In light of this, we maintain a Hold recommendation on the shares of JNPR.
Shares of JNPR are currently trading at a P/E multiple of 24.4x our 2008 earnings estimate of $0.99. Juniper has raised its long-term revenue growth target to 27.1% (at the mid-point of the new guidance) after posting 23.1% revenue growth in 2007. We lower our price target to $25.50, which represents a P/E multiple of 25.8x 2008 earnings estimates. Juniper's net margin has been on a declining trend due to a considerable increase in its cost of sales and operating expenses.
We expect margins to remain flat in 2008 and increasing in coming years. Asset utilization has improved as the company grows and is the reason for improving ROE (return on equity). The company has a capital structure with small debt and a strong cash balance, which is not unusual for a profit-making technology company. As JNPR matures, we would expect to see it return cash to shareholders in order to enhance its ROE.
Anaren with Cost-Related Issues
Anaren, Inc. (ANEN) a leading provider of microwave components and subassemblies for the wireless and defense industries, is challenged with recent indications of cost overrun as a result of supply-chain issues and other production related conditions.
An anticipated sales decline for Anaren's high-margin IED products, together with ongoing macro-economic downturn in the global economy, are likely to generate earnings fluctuations over the near-term. The company announced mix financial results for its fourth quarter of fiscal 2008 (ended June 30).
Net income was significantly below our estimates despite a ramp-up in sales. Anaren has a strong financial position and diversification into multiple vertical markets spread sector-specific risk during turbulent market conditions. We maintain our Hold recommendation and the same valuation target until the company shows signs of overcoming cost related issues.
Anaren is currently trading at 17.8x estimated forward earnings for fiscal 2009. This is at a premium to the S&P 500 but at a discount to the industry group average. We maintain the same six-month target price of $12 based on a P/E multiple of approximately 19.5x our fiscal 2009 earnings estimates.
Microsemi Strong in Good Markets
Microsemi Corporation (MSCC) is an OEM of semiconductor analog and mixed signal ICs, with substantial presence in the high reliability space. The company is strongly positioned in high-growth markets such as commercial aerospace, implantable medical devices (expected to grow 15-20% annually over the next four years) and LCD TVs.
June quarter revenue was inline with consensus estimates, while the EPS exceeded.
