Juniper Networks, Inc.: 2 Reasons to Be Bullish JNPR Despite Guidance Cuts

Bad patch of earnings aside, long-term investors may find an opportunity here

Juniper Networks Inc. (JNPR), a top provider of networking equipment and cybersecurity technology, has mostly stumbled this year. Investors aren’t interested in Juniper’s excuses for lackluster earnings, and as of Tuesday afternoon, JNPR stock is off by 8%.

2 Reasons JNPR Is Still a Buy After Guidance Cut

After Monday’s closing bell, Juniper tempered expectations for its April 28 earnings report by lowering guidance to between $1.09 billion and $1.10 billion, and lowering adjusted earnings to a range of 35 cents to 37 cents a share.

Just a few months ago, the company’s own projection was for revenues between $1.15 billion to $1.19 billion and per-share profits ranging from 42 cents to 46 cents. As should be no surprise, the Street consensus was also too high, coming to $1.19 billion on the top line and 47 cents on the bottom line.

Okay then, so what’s going on?

JNPR Is More Than Its Current Quarter

Well, according to JNPR, its enterprise segment experienced weaker demand, especially with deployments of some U.S. and EMEA (Europe, the Middle East and Africa) tier-1 telecom operators.

Now it’s tough to get a sense of the reasons for this (we will not get more color until the company releases its full earnings report). After all, the competitive environment is littered with formidable rivals like Cisco Systems, Inc. (CSCO) and Arista Networks Inc (ANET). However, the networking business is inherently lumpy. In fact, given the global economy slowdown, it seems reasonable that customers are growing antsy and putting off deals. Actually, this is one of the conclusions drawn by Bernstein in a recent note (the firm has a $31 price target on JNPR).

But when looking at some of the secular trends, the prospects for JNPR still remain promising. For example, the number of broadband users, on a worldwide basis, is expected to ramp from 700 million today to 940 million by the end of 2018. A key driver will be video. Think Netflix, Inc. (NFLX) or Alphabet Inc (GOOG, GOOGL) with YouTube.

No doubt, this megatrend will gin up substantial demand for networking gear. More importantly, there will be a need for the sophisticated technologies of JNPR that can deliver media in huge volumes with low latency.

But there is another megatrend: cloud computing. As seen with the success of companies like, inc. (CRM), the software industry is making a major shift to this type of technology. The result is that old-line operators — SAP SE (ADR) (SAP), International Business Machines Corp. (IBM) and Oracle Corporation (ORCL) — are aggressively playing catch-up. But yes, this means there will continue to be strong demand for networking gear.

So Should You Invest in Juniper Networks?

Now the good news is that Juniper Networks is one of a handful of companies that has the credibility and scale to provide the kinds of systems that will be needed. The company has also been making savvy acquisitions, such as for BTI Systems (a provider of optical equipment), and has continued to invest in R&D.

And let’s not overlook Juniper Networks’ attractive valuation. JNPR sports a forward price-to-earnings ratio of about 10 times. By comparison, CSCO trades at a 11.5 times earnings and ANET is at about 20 times.

So in light of the potential catalysts from the megatrends of broadband and cloud computing, JNPR does look to be at a reasonable entry point for investors, especially for those with a longer-term horizon.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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