Juniper shares jump on earnings, Wall Street kudos

Juniper Networks (Nasdaq: JNPR) surged 13 percent after the company reported strong fourth quarter results and upped its guidance for 2001.

Analysts reiterated their already top-notch ratings, said the company was on track to keep gaining market share from Cisco (Nasdaq: CSCO) and praised the company's visibility.

Shares in the Internet routing company were up 16.16 to 144.16 Wednesday after its Tuesday night report, which showed pro forma net income of $84.6 million, or 24 cents per share, on revenue of $295.4 million. That compares with earnings of $4.8 million, or 1 cent per share, on revenue of $45.4 million for the same period in 1999.

Visibility

Juniper's sales were impressive in light of how badly the telecommunications sector has been pounded recently.

On a conference call with analysts, Juniper Chief Executive Scott Kriens said there is "clear evidence that we are seeing reduced visibility." Nevertheless, the company was able to raise guidance for the first quarter and fiscal year and 2001, a feat which analysts lauded.

For the first quarter, Juniper expects revenue to increase sequentially by 12 percent to 15 percent, up from the previous guidance of 10 percent. For fiscal 2001, the company expects to more than double revenue to $1.5 billion to $1.6 billion, up from the previous guidance of $1.3 billion to 1.4 billion.

SG Cowen Securities Inc. analyst Christin Armacost reiterated a "strong buy" and target price of $175 a share, praising the company's "quality" and "visibility."

"Given that the company continues to raise guidance and plans to double its headcount in 2001, we believe that, relatively, Juniper has some of the best visibility of the companies we track and remains more immune to a capex downturn," Armacost wrote in a research note.

Armacost upped her 2001 revenue estimate to the high end of company guidance -- $1.60 billion, up from $1.33 billion, and raised earnings from 81 cents a share to $1.08 a share.

Goldman Sachs analyst Charlton Yu said the company's acknowledgement that overall visibility is lower, consistent with the tighter carrier market, will put it in even better standing with investors, who will "probably look beyond this and recognize that Juniper remains in an exceptional position in the most attractive market segment."

"The stock is likely to react positively as strong guidance from a conservative management team confirms a very bullish outlook," Yu wrote.

Gaining on Cisco?

The company also said Tuesday that it expects to maintain 12-month technology lead over Cisco through new products and interfaces. Cisco has been battered by analysts who contend the networking giant's glory days may be over.

Analysts foresee Juniper grabbing more market share based on its continued lead on Cisco and the introduction of new access products and wireless market opportunities. "We believe that Juniper likely gained 3 to 4 percent in market share with its performance this quarter (its third quarter share was 30 percent)," said Armacost.

Contributing to the company's market share gains is its 12-month lead in the OC192 card. Though Cisco is expected to release its OC192 during the March quarter, Cisco gaining share does not necessarily equate to Juniper losing customers, said Armacost, noting that the market is projected to grow 150 percent in 2001.

"Although concerns about the stock's valuation and Cisco's pending availability of OC192 remain in investor minds, we believe that the company's long-term outlook remains gaited only by its execution and ability to expand its addressable market," Armacost wrote, in the sole expression of any possible negatives for Juniper in its upcoming quarters.

Positives

Customer diversification, high margins, a strong cash balance and a book-to-bill ration of over 1.00 were all cited as reasons to believe Juniper is still going strong despite industry weakness.

Analysts were unanimous in their praise of the company's ability to diversify its customer base, which it said expanded to greater than 300 during the fourth quarter.

An especially important win was Telia, a Swedish company, which may presage coming increases in sales to incumbent European service providers in the next few quarters, according to Yu. "These customers have very strong financial positions and will be an excellent addition to Juniper's existing first rate customer base," the analyst added.

Ericsson (Nasdaq: ERICY) and WorldCom (Nasdaq: WCOM) were the largest customers, both accounting for more than 10 percent of total revenue during the quarter.

The company's already high margins continued to increase, with gross margins up to 65.7 percent, above most analysts' estimates due to a higher mix of interface cards, the higher than expected revenue, and an increase in production efficiencies.

Juniper's cash flow positive quarter helped it maintain a strong balance sheet; its total investments were steady at $1.6 billion.

Lehman Brothers analyst Mark Sue, who reiterated a "strong buy," also noted several positives around the bend.

"We believe Juniper will benefit from the rapid shift in spending from voice centric to data optimized equipment, helping to cushion the impact from a temporary scale back in overall service provider spending," the analyst said in a research note.

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