A month has gone by since the last earnings report for Juniper Networks (JNPR - Free Report) . Shares have lost about 3.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Juniper due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Juniper Beats on Q3 Earnings Despite Soft Revenues
Juniper reported better-than-expected results in third-quarter 2018, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate. Its financial performance was primarily driven by sales growth in Enterprise business, decrease in total cost of revenues and income tax benefit.
On GAAP basis, net income increased to $223.8 million or 64 cents per share from $165.7 million or 43 cents per share in the year-earlier quarter despite softer revenues, primarily due to lower operating costs and income tax benefit.
Non-GAAP net income for the reported quarter was $191 million or 54 cents per share compared with $211.1 million or 55 cents per share in the year-ago quarter. The year-over-year decline was due to the recognition of previously unrecognized tax benefits and reduction of expected tax liabilities from tax accounting method change. However, non-GAAP earnings per share comfortably beat the Zacks Consensus Estimate by 10 cents.
Net revenues were $1,179.8 million compared with $1,257.8 million in the prior-year quarter, down 6.2% primarily due to decrease in sales in Service Provider and Cloud business. However, the top line exceeded the Zacks Consensus Estimate of $1,174 million.
Product revenues (comprising Routing, Switching and Security, and accounting for 67.4% of total net revenues) decreased 8.6% year over year to $794.7 million due to lower demand for routing products. Service revenues (accounting for 32.6% of total net revenues) were down 0.8% year over year to $385.1 million due to the impact of the adoption of ASC 606.
Geographically, net revenues increased to $329.9 million from $298.6 million in EMEA (Europe, Middle East, and Africa) supported by healthy performance in Enterprise business. Quarterly revenues in the Americas decreased 11.8% year over year to $643.1 million due to decline in Service Provider and Cloud business. For Asia Pacific, net revenues decreased 10.1% to $206.8 million.
By vertical, net revenues from Cloud business declined 27.5% year over year to $250 million as several of the company’s customers are running their networks harder and the pace of cloud deployments are proceeding more slowly than it was previously anticipated. Net revenues from Service Provider business were down 5.8% to $543.6 million due to lower customer strength. Net revenues from Enterprise business climbed to $386.2 million from $336 million driven by solid demand for the company’s enterprise routing portfolio, as new solutions like the MX204 and MX10003 are witnessing success in previously unserved markets.
Non-GAAP operating margin decreased year over year to 20% from 23.5%. While quarterly capital expenditures were $31.6 million, depreciation and amortization expenses amounted to $48.8 million.
Cash Flow and Balance Sheet
Juniper generated $648.7 million of cash from operations in the first nine months of 2018 compared with $1,046.7 million in prior-year period.
As of Sep 30, 2018, the company had $2,501.7 million of cash and cash equivalents with long-term debt of $1,788.6 million.
Juniper is anticipated to return to growth in the fourth quarter but the mid-point of its revenue guidance reflects a year-over-year decline due to the slower pace of expected deployments in the Cloud business.
The company expects tariffs on Chinese imports to have no direct impact on its fourth-quarter results. However, customer buying behavior could be affected and gross margin could be slightly impacted.
The company expects revenues of approximately $1,220 million (+/- $30 million) for the fourth quarter. Non-GAAP gross margin is projected to be around 60% (+/- 1%). Non-GAAP operating expenses are expected to be nearly $490 million (+/- $5 million). The company expects non-GAAP operating margin to be around 20% at the midpoint of revenue guidance. While non-GAAP tax rate is expected to be about 18%, non-GAAP net income is anticipated to be approximately 57 cents per share (+/- 3 cents), assuming a share count of nearly 350 million.
Despite some short-term challenges in the market particularly within the cloud vertical, Juniper expects encouraging developments in many areas of its business that augur well for its long-term growth prospects. The company remains optimistic about the potential of its MX5G offerings, which it plans to begin shipping early next year.
Also, Juniper is excited about new and expanding partnerships with firms like Nutanix and Ericsson as this will provide competitive edge over alternative offerings. It is in the early stages of ramping several important new innovations, such as Contrail Enterprise Multicloud and the SPC3 line cards for its high end SRX firewall, both of which began shipping in the third quarter.
Juniper is on the verge of introducing the industry’s first 400-gig product and is well positioned to gain incremental market share as cloud, service provider and enterprise customers look to meet surging bandwidth requirements.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Juniper has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Juniper has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.