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Why Is Juniper (JNPR) Down 3.5% Since Last Earnings Report?

Zacks Equity Research
·5-min read

It has been about a month since the last earnings report for Juniper Networks (JNPR). Shares have lost about 3.5% 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 drivers.

Juniper’s Q2 Earnings Meet Estimates, Revenues Beat

Juniper reported decent second-quarter 2020 results, with the top line surpassing the Zacks Consensus Estimate. The network products and services provider experienced solid demand during the quarter. Of the top 10 customers, six were Cloud, three were Service Provider and one was in Enterprise.

Net Income

On a GAAP basis, net income in the June-end quarter increased to $61.2 million or 18 cents per share from $46.2 million or 13 cents per share in the prior-year quarter. The improvement was primarily caused by higher operating income and lower provision for income tax.

Non-GAAP net income was $116.3 million or 35 cents per share (above the mid-point of the company’s guidance range) compared with $139.5 million or 40 cents per share in the year-ago quarter. The bottom line matched the Zacks Consensus Estimate.

Revenues

Quarterly total revenues amounted to $1,086.3 million (above the mid-point of the company’s guidance range) compared with $1,102.5 million reported in the year-ago quarter. The decline was due to supply constraints that resulted in extended lead times during the quarter. Nevertheless, Juniper experienced strong demand with orders growing mid-single-digits year over year. The top line beat the consensus estimate of $1,053 million.

Product revenues (comprising Routing, Switching and Security and contributing 63.7% to net revenues) in the quarter fell 3% year over year to $692.3 million. The company saw momentum within its customers’ wide area network, particularly for some of its routing products. Service revenues (contributing 36.3% to net revenues) inched up 1.4% to $394 million, driven by strong renewals and service attach rates.

By vertical, revenues in Cloud were stable year over year at $285.5 million. Order trends were healthy with good momentum at multiple hyperscale accounts as well as with Tier 2 Cloud customers. Revenues in Service Provider declined modestly to $436.2 million. This business was most affected by the coronavirus-related supply chain challenges. Revenues in Enterprise declined to $364.6 million from $370.3 million, owing to weaker-than-anticipated results from U.S. Federal business, which was impacted by COVID-19 timing dynamics.

Region-wise, revenues improved to $294.1 million from $291.9 million in the year-ago quarter in Europe, the Middle East, and Africa. Quarterly revenues in the Americas declined 6.2% year over year to $608.8 million. In Asia-Pacific, net revenues increased 13.3% to $183.4 million.

Other Details

Overall, gross profit came in at $619.6 million compared with $636.8 million in the year-ago quarter. Total operating expenses fell from $554.4 million to $529.1 million in the prior-year quarter. Operating income was $90.5 million compared with $82.4 million in the year-ago quarter. Non-GAAP operating income declined to $155.2 million from $174.4 million, with a margin of 14.3% and 15.8%, respectively.

Juniper stated that its board of directors approved a dividend of 20 cents per share, payable on Sep 22 to shareholders on record as of Sep 1.

Cash Flow & Liquidity

In the first half of 2020, Juniper generated $369.8 million of net cash from operating activities compared with $248.2 million in the prior-year period. As of Jun 30, the company had $1,460.3 million in cash and cash equivalents with $1,720.1 million of long-term debt.

Q3 Outlook

Juniper provided its guidance for the third quarter of 2020. It expects revenues of $1,125 million (+/- $50 million). Non-GAAP gross margin is anticipated to be 59.5% (+/- 1%). Non-GAAP operating expenses are expected to be $478 million (+/- $5 million). 

The company estimates non-GAAP operating margin to be nearly 17% at the midpoint of revenue guidance. Non-GAAP net income is expected to be 43 cents per share (+/- 5 cents), assuming a share count of about 334 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Juniper has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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