We reiterate our Neutral recommendation on
Juniper Networks Inc.
) post the announcement of third-quarter 2013 results.
Why the Reiteration?
Although Juniper delivered better-than-expected third-quarter
results and the guidance was encouraging, we remain cautious
about the increasing competition, uncertain economic conditions
and constricted federal spending.
Nonetheless, Juniper's traction in the Software Defined
Networking (SDN) space is a major positive. Juniper is optimistic
about the SDN products and believes that the technology is
increasingly attracting customer attention. With gradual demand
growth, we believe Juniper is well positioned to generate steady
revenues from this area.
Juniper has been successful in developing collaborations with
global channel partners and has strategic reseller relationships
) and Nokia Siemens Networks. In addition to these two major
partnerships, Juniper has worked with more than 9,000 channel
partners to reach customers globally.
Moreover, the company has developed partnerships with market
leaders, such as Avaya Inc.,
). These associations will help in enhancing its networking
technology, which will ultimately help companies to transfer an
enormous amount of data through different networks.
The company has undertaken cost-cutting measures to revive its
bottom line. Central to its cost-cutting strategy is the
reduction in headcount. These initiatives will help the company
to improve operating performance, reduce operating expenses by
about $50.0 million and also save $50.0 million on costs related
to revenues, on an annualized basis. We believe that the layoffs
will greatly help Juniper to improve profitability.
However, the consolidation in the telecom market is a headwind
for the company. Considering Juniper's broad exposure to the
service provider market, the ongoing consolidations could
increase uncertainties and restrict its revenue growth in the
Moreover, to remain competitive, investments in newer and
innovative products will be the prime focus, which will keep
costs up. Hence, Juniper has to focus on market share growth to
counter margin contraction.
Currently, Juniper has a Zacks Rank #3 (Hold).
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