Is Juniper a Good Pick After Reporting Earnings?

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In late July, Juniper (NYSE: JNPR) released its results for the second quarter of the fiscal year. Since the tech company enjoyed a fresh cycle of customer investments, its earnings increased 71% in quarterly profits. This meant net income rose to $98 million from $57.7 million in 2012. Its operating margin increased to 12.0% from 8.1% in the second quarter of the year prior and rose from 8.2% in the first quarter of this year.

A closer look at Juniper

A variety of factors caused Juniper's earnings to rise. The latest growth marks a reversal from a two-year decline due to weak spending from telecommunications companies. Additionally, revenue from the company's platform business segment rose 5.7% as services revenue and routing sales improved. 

Juniper currently trades at 16 times forward earnings, which is comparatively cheap for a tech company. Though Wall Street believes that Juniper will face more competitors in the next few quarters, its forecasts imply that Juniper's shares are improving.

Analysts and hedge fund managers

Some analysts are eyeing $1.50 earnings estimate for the stock next year. In addition, Argus Research upgraded Juniper to Buy from Hold at a price target of $36.00. Canter Fitzgerald also upgraded the stock to a buy at the price target of $21.00.

In tracking hedge fund managers, I found that Ken Griffin's Citadel Investment Group has a stake in the stock. Additionally, Ray Dalio's Bridgewater Associates increased its stake recently by 700%. Dmitry Balyasny's Balyasny Asset Management added to its portfolio in the present quarter as well.

Comparing Juniper to its peers

Juniper's peers include Cisco (NASDAQ: CSCO), Alcatel-Lucent (NYSE: ALU), and Hewlett-Packard (NYSE: HPQ).

Cisco, at a trailing P/E of 14, is cheap in comparison to other tech companies. However, investors are worried that the company is being hurt by a weak technology spending. It might be of interest to defensive investors that the stock has a beta of 1.41, which makes it less risky than Alcatel-Lucent (2.34) and Hewlett Packard (1.66). With a dividend yield of 2.70%, it is more profitable than Hewlett Packard (2.20%) and Alcatel Lucent.

Hewlett Packard has been having problems for some time. In the most recent quarter, its profit  plummeted 32%, but Wall Street had braced for worse. However, the stock gained 14% after the company projected full-year earnings per share of $3.50 to $3.60. It also improved its operating net debt position by $1.8 billion, the fifth consecutive quarterly reduction of over $1 billion. Sell-side analysts are forecasting an improvement in earnings next year. If Hewlett Packard can achieve analyst targets, the forward P/E would be 7, which will make the stock extremely cheap going forward.

Alcatel-Lucent also has problems generating earnings and revenue. Consequently, analysts are not optimistic in terms of its future EPS. In its case, most recent estimates show that Alcatel-Lucent's EPS growth rate for the next five years is -26.40%. However, the company profited from increased revenue in its key U.S. market to beat analyst estimates in the second quarter. It also announced Qualcomm would buy a stake as part of a research partnership. But Alcatel-Lucent has lost more than $10 billion since a 2006 merger. Its future rests on the spending by telecom operators in the coming years.

There are some factors in Juniper's recent earnings report that may affect the company and its stock going forward. Its security products declined  20% year on year, while its total solid state device revenues declined 18%. Investors might also not be comfortable that share-based compensation declined 12% compared to the previous year.  Despite this, we hesitate to label this a problem. Juniper's fundamentals appear strong. The stock's long-term expected growth is robust as exhibited by a 5-year expected earnings growth rate of 14%, above the S&P 500 average of  9%. The company will thrive despite concerns about corporate demand for its new equipment

Conclusion

Apart from Alcatel-Lucent, Juniper's peers look interesting. Juniper at 6.74% is trading at a reasonable profit margin when compared to Hewlett Packard (-11.60%) and Alcatel-Lucent (-14.69%). And the company has enough cash flow to expand its operations. If the company performs in line with the expectations of sell-side analysts, its valuation will become even more attractive to investors.

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Mark Girland has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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