Juniper Networks shares rallied off their 52-week low Monday, gaining $4.38, or 8 percent, to $58 even though UBS Warburg cut its 12-month price target from $250 a share to $100 a share. Other analysts came to Juniper's defense despite concerns about the overall health of the sector.
UBS Warburg analyst Niko Theodosopoulos on Monday predicted the telecom-equipment sector would enjoy sales growth of less than 10 percent in fiscal 2001, marking the first time since 1993 that sales didn't grow between 15 percent and 25 percent for the year.
Theodosopoulos cut 2001 earnings estimates for Cisco Systems (Nasdaq: CSCO) and Nortel Networks (NYSE: NT) from 64 cents a share and 72 cents a share to 62 cents and 50 cents a share, respectively. He lowered Cisco's 12-month price target to $30 a share from $40 a share, while chopping Nortel to $22 a share from $27 a share.
While he left Juniper Networks' (Nasdaq: JNPR) fiscal 2001 earnings estimate unchanged at $1.02 a share, he slashed the price target to $100 a share from $250 a share for the company, which develops products and services for Internet Protocol (IP) infrastructure.
"Given the rationalization under way in the service-provider market, we do not think 2002 will have a resumption of growth to 15 percent-plus either," he wrote in a research note. "We believe service-provider rationalization is likely to cause more disruptions in equipment spending through at least 2002."
Apparently investors weren't too concerned with USB Warburg's conclusions, as Cisco shares moved up 69 cents to $22.88 and Nortel gained 46 cents to $17.69.
After watching network-equipment shares plummet in the wake of Cisco's recent earnings miss and reduced outlook, two analysts reiterated their "strong buy" recommendations on Juniper.
"While our current $150 price target may be aggressive, we believe that based on a 50 percent growth rate and even a multiple of that, the stock should be at $80 in less than 12 months, representing significant upside from Friday's closing price," wrote CS First Boston analyst Lissa Bogaty in a research note. "With some multiple appreciation, the stock should rise even higher."
Bogaty said she expects Juniper to post fiscal 2001 sales of between $1.6 billion and $1.7 billion, above the First Call consensus estimate of $1.55 billion. She sees earnings coming in between $1.15 and $1.25 a share, also above the consensus estimate of $1.06 a share.
Lehman Brothers analyst Mark Sue also reiterated his "strong buy" recommendation, saying the stock's recent weakness represents a good opportunity.
"Shares of Juniper Networks were off sharply during Friday's trading session due to rumors of a pre-announcement and yet another rumor related to an acquisition of Redback Networks," Sue wrote in a research note. "We believe these rumors are without merit and we would view the weakness as a buying opportunity. While visibility may have declined somewhat from the strong levels seen earlier in the quarter, we believe financially healthy carriers who represent the bulk of Juniper's revenues continue to build out their IP backbones."
Sue, who maintains a 12-month price target of $100 a share, said Juniper continues to chip away at Cisco's lead in the core router market without dramatically slashing prices.
Juniper shares fell to a 52-week low of $53.25 Friday after peaking at $244.50 in October.
After topping analysts' estimates in its fourth quarter, Chief Executive Officer Scott Kriens raised the company's first-quarter and fiscal 2001 sales targets.
Despite the stock's recent slump, all 24 analysts following the company maintain either a "buy" or "strong buy" recommendation.
Analysts are forecasting a profit of 25 cents a share in the first quarter on sales of $336 million.