Juniper ( JNPR ) recently released its Q4 2010 earnings and based on better than expected revenues and profit margins, we have updated our price estimate to $32.59 , which still stands about 20% below the current market price. Juniper competes with Cisco ( CSCO ), Alcatel-Lucent ( ALU ), Huawei-3Com and HP ( HPQ ) in the network equipment business.
Juniper's stock jumped almost 13% after its earnings release and so the market is clearly more optimistic on Juniper's growth and market share prospects than our current forecasts suggest and so we take a look at where some of the biggest discrepancies might exist.
The Bottom Layer Switches Segment
Although several factors are driving Juniper's stock higher, we believe that one of the biggest impacts potentially comes from the bottom layer switch market. Juniper has a smaller presence in this market vs. other markets it competes in like edge and core routers, and we think this might be its biggest opportunity to grow.
To demonstrate the sensitivity of its share price on market share gains, we believe that Juniper may need to grab to reach close to 12% to 13% market share by the end of our forecast period in the bottom layer switches segment in order to justify its current stock price. This ignores improvements in other segments such as the security business where we think it can improve.
Size of the Opportunity
The market size for the bottom layer switches is more than the combined size for routers (core, enterprise and edge) at an estimated $16.9 billion for 2010. The company has been successfully pushing into the switching market with its EX series switches. Its new data center fabric offering 'Project Stratus' is being complements its switches business, and so the switches business could catch some associated benefits if the data center offering takes off. Overall the ethernet switches business witnessed year-over-year revenue growth of 66%.
Do you think Juniper can take up share from giant Cisco which dominates switching market as of now?
You can modify the forecast above to see how higher share impacts Juniper's price estimate.