The maker of high-end routers reported its second-quarter results Thursday, and Wall Street's collective mind was split over how to interpret them. Thomas Weisel Partners analyst Hasan Imam summed up the situation:
"Bears, feeling grouchy from all of the carnage in tech land, can growl and point to the cratering of Juniper's top line, bottom line and margins in between from only a quarter ago. Bulls, on the other hand, can charge that the 'bottom' is now in sight--after all, management effectively called a bottom by indicating that revenues would be flat for the next couple of quarters...We appear to be poised on a delicate balance of risk and reward here, and both bullish and bearish arguments can be made out of the call."
About the best that can be said about Juniper's latest quarter completed is that it could have been worse. But after months of seeing disappointments from virtually every company related to the data-networking industry, could-have-been-worse doesn't seem bad these days.
But in many ways, Juniper last week gave investors far more reason to hope than they received a few days earlier from Corning, a company at the other end of the network infrastructure chain. At least Juniper, unlike Corning, dared to provide a near-term forecast.
Juniper's prediction of flat revenue in the third quarter and slightly increased sales in the fourth was enough to please observers such as Natarajan Subrahmanyan, analyst with Goldman Sachs.
"This should come as a relief, as investors had feared a further slide in Juniper's numbers following significant preannouncements from telco vendors and a seasonally weak third quarter," Subrahmanyan wrote Friday. "While visibility continues to be very low and fundamentals for the industry haven't really improved, Juniper's guidance implies that its numbers could be bottoming and Juniper could get back on the growth track."
At least two analysts, Paul Johnson of Robertson Stephens and Tad LaFountain of Needham & Co., took the opportunity to reiterate their belief in Juniper as a long-term investment play. Johnson, who spoke glowingly of Juniper before the company ever went public, upgraded Juniper to a "strong buy" rating. LaFountain already maintained one.
Wall Street seemed to share positive views for much of Friday. The day after Juniper's quarterly report, the company's shares opened 54 cents above the previous session's close and gained as much as $1.52.
However, pessimists had the last word. Juniper slid in the last two hours of the week's regular trading to lose $1.03 for the day.
Few if any observers believe Juniper is a badly run company. Market research firms such as the Dell'Oro Group indicate that Juniper has seized market share from Cisco Systems over the last few years, and Juniper claims not to have lost any share in the latest quarters despite the recent introduction of Cisco routers with competitive performance.
Unfortunately for Juniper, it can't do anything about the diminished state of the overall networking market. And that gives naysayers ammunition.
"Although we continue to view Juniper as the technology leader in the (Internet Protocol) router market, we remain cautious on the shares in the near term," said Truc Do, analyst with Lazard Freres, which has a "hold" rating on Juniper.
Do believes many of the communications backbone providers that buy Juniper's products are ailing financially. And he sees Juniper's stock as expensive.
Buying Juniper nowadays requires patience.
Not many people believe the optical networking market will improve before next year. Some CEOs have predicted capital spending in the telecom market won't increase again until 2003, although executives these days prefer to err on the side of caution.
Yet Wall Street conventional wisdom tells investors to buy well-regarded stocks when their prices are depressed in bad economic times.
"Although (Juniper's) valuation is not cheap by any metric, and business visibility remains limited, we believe that the stock is a franchise name," Robertson Stephens' Johnson wrote. "We may be early in our recommendation, but we would rather be early than late with this recommendation."