Shares of Juniper Networks Inc (JNPR - Free Report) declined 3.2% during after-hour trading session following the company’s announcement of preliminary third-quarter 2017 results. The company is scheduled to report the final numbers on Oct 24.
Juniper now anticipates revenues in the range of $1.25-$1.26 billion, down from previous expectation of $1.29-$1.35 billion. Management attributed the decline to lower cloud computing revenues.
Notably, cloud computing revenues grew 32% year over year. Four out of top 10 customers were cloud providers in the second quarter of 2017.
Moreover, earnings are now projected in the range of 54-56 cents per share, down from previous guidance of 55-61 cents.
The Zacks Consensus Estimate for earnings is currently pegged at 58 cents on revenues of $1.32 billion.
Notably, Juniper’s shares have lost 5% of its value year to date compared with the 3.4% decline of its industry.
Headwinds Persist in the Second-Half
Juniper is facing significant pricing pressure amid intensifying competition in the network equipment market from the likes of Arista Networks Inc (ANET - Free Report) , Cisco Systems Inc (CSCO - Free Report) and others including white-box vendors.
Moreover, as stated by management, Juniper’s expansion into low-margin Asia-Pacific market negatively impacted customer mix. Further, growing proportion of low-margin switch business in the product mix as compared with high-margin router business is a headwind for gross margin expansion.
Additionally, higher DRAM memory prices are expected to hurt gross margin in the rest of 2017.
Growth Opportunities Exist
Juniper has witnessed accelerated demand and adoption of its Software Defined Secure networks (SDSN) platforms. In the last quarter, the platform was enhanced with security enforcements, which protects data transmission and computing on enterprise networks as well as public and private clouds from breaches.
Moreover, we believe Juniper’s latest introduction, Contrail Security, which ensures protection for applications that are deployed in volume-loaded heterogeneous cloud-based environments is a key catalyst.
The company recently unveiled Cloud-Grade Networking, which covers telemetry, automation and machine learning processes. This is also expected to drive the top line in the near term.
Zacks Rank & Key Pick
Currently, Juniper has a Zacks Rank #3 (Hold). Ubiquiti Networks Inc (UBNT - Free Report) with a Zacks Rank #2 (Buy) is a stock worth considering in the same sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth for Ubiquiti is currently pegged at 20.1%.
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