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Juniper Networks May Post Lower Q4 Profit, SDN Strategy In Focus

 January 22, 2013 10:05 AM

(By Mani) Networking gear maker Juniper Networks, Inc. (NYSE: JNPR) is expected to report lower profit when it announces its fourth-quarter results on Jan.24 on lower carrier spending and weak enterprise performance.

California-based Juniper makes routers and switches that are used to control and direct network traffic from the core. Of late, it has been lagging behind heavyweight Cisco Systems, Inc. (NASDAQ: CSCO) and smaller rivals such as Palo Alto Networks, Inc. (NYSE: PANW), Aruba Networks, Inc. (NASDAQ: ARUN) and Riverbed Technology, Inc. (NASDAQ: RVBD).

[Related -Juniper Networks (JNPR) Calls Look For Shares To Rebound]

For the quarter ended Dec. 31, Juniper is expected to earn 22 cents a share, according to analysts polled by Thomson Reuters. The consensus estimate implies a 21 percent decrease in earnings from last year when it earned 28 cents a share. The company expects fourth-quarter earnings of 19 to 22 cents a share.

During the past four quarters, the company's earnings have managed to top Street view thrice. The consensus view has come down from 24 cents in the past 90 days. In the last 30 days, two analysts have upped their earnings estimate on Juniper.

[Related -Apple Tops Low Expectations]

Quarterly revenues are expected to remain almost flat with last year at $1.13 billion, driven by competitive pressures and weak carrier spending. The company, which forecasts fourth-quarter revenue of $1.100 billion to $1.130 billion, has recorded single-digit revenue drop three times in the preceding four quarters.

For the third quarter, it reported net income of $16.8 million or 3 cents a share, compared to $83.7 million or 16 cents a share for the year-ago quarter. Excluding items, it earned 22 cents a share. Net revenue for the third quarter grew 1 percent to $1.12 billion.

During the fourth quarter, Juniper announced the acquisition of Contrail, a little-known software-defined networking (SDN) start-up, for $176 million in cash and stock. Contrail was founded and financed in part by Juniper earlier this year, making the move a spin-in of sorts. The company is developing an OpenStack enabled network controller for web-scale large enterprises, and it could be the foundation of Juniper's SDN framework with commercialization likely only in late 2013

For the full year, Juniper is projected to earn 79 cents a share on revenue of $4.35 billion.

One of the key hurdles of Juniper stock is that it has a P/E ratio of 60 with poor growth, suggesting that investors are betting too much for returns for a stock that has been over-valued and expensive given the tepid growth versus rivals.

Accordingly, even small changes in investor expectations for future growth and earnings, could trigger significant fluctuations in the share price.

Out of 40 analysts covering the stock, 11 (28 percent) of them has a rating of "strong buy" or buy," while 25 analysts (63 percent) recommend "hold." Three analysts rate the stock "sell."

Although Juniper is a leading player in the data networking market with a compelling, high-performance focused product portfolio, iStock believes investors should remain on the sidelines due to near-term macro headwinds and pending further clarity on product transitions, especially SDN.



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