Operating in two segments, Platform Systems Division and Software Solutions Division, Juniper Networks, Inc. (NYSE:JNPR) caters to the networking requirements of service providers, enterprises, governments, and research and public sector organizations across the globe. The two segments of company taken together provide complete solutions ranging from routing and switching hardware to network security software solutions.
Revenue & earnings
Second-quarter results reflected strong revenue growth and even stronger growth in earnings. The service provider segment has been witnessing an increased momentum in spending by Juniper Networks, Inc. (NYSE:JNPR)‘s customers. Also, there has been increase in demand from enterprises. These two factors together accounted for contributing around half of growth in revenue which exceeded all expectations. The other half of the growth in revenue came from earlier-than-expected recognition of some U.S. federal business.
The company maintained a book-to-bill ratio of greater than 1 due to demand for its products and the product backlog also increased year-over-year. As a result, total revenue stood at $1.15 billion, which turned out to be an increase of 7% year-over-year.
75.1% of quarterly revenue came from product sales, which witnessed a growth of 7.3% and the rest was contributed by the services segment which grew 6.6% on a year-over-year basis.
Net income stood at $97.9 million, which worked out to $0.19 per share, up from the year-ago quarter’s $57.7 million, or $0.11 per share. The company is focused on cost reduction initiatives and operating expense as a percentage of revenue stood at 44.8% as compared to 48.4% in year-ago quarter. Juniper Networks, Inc. (NYSE:JNPR) is also managing expenses efficiently to improve margins. The company is well on course to achieving a $50 million year-over-year OpEx reduction in absolute terms.
Prospects
There has been a gradual but steady recovery in network spending worldwide and the current mood seems to sustain itself in the coming quarters, which is a good sign. As capital expenses on networks increase, so will the revenue of Juniper Networks, Inc. (NYSE:JNPR). Increase in demand of data is driven by the growth trends in mobile and cloud computing. Mobile data traffic has grown exponentially which, as per CISCO VNI report, is expected to grow at CAGR of 65% over the next five years.
Service providers, who will need to buy networking gear to upgrade their existing mobile network or replace aging hardware in order to handle the burgeoning demand for data, account for almost two-thirds of Juniper’s revenue. So, Juniper has a bright future ahead in this segment. Verizon and AT&T are two big clients of Juniper in the U.S. and each account for around 10% of Juniper’s revenue. As they expand their network, revenue of Juniper should also increase.
The company foresees a good quarter ahead as far as the service provider segment is concerned and also expects some improvement in the EMEA region. Revenue for the third quarter is likely to be in $1.14 billion-$1.18 billion range. Also, Juniper is seeing increased traction for its new products, especially in routing and that should help product gross margins improve further.
The early signs of success with new products like P4000, PTX, and QFabric are already good, going by the fact that these accounted for around 10% of revenue in the last quarter. Juniper is also confident of meeting the targets of a quarterly revenue run rate of $150 million for the new products by the end of the year, when they would account for almost 20% of total revenue.
Competitors
Cisco Systems, Inc. (NASDAQ:CSCO) and Alcatel Lucent SA (ADR) (NYSE:ALU) are two heavy weights that Juniper needs to be keeping a close watch on.
Cisco has an impressive performance under its belt which boasts of wireless revenue growth of 27% and routing and data center growth of 77% in the last year.
Cisco Systems, Inc. (NASDAQ:CSCO) is expanding its foothold globally and is present in the high growth emerging markets apart from the U.S. It is rapidly growing in the cloud computing segment while the conventional networking equipment segment is growing slowly.
Consistent revenue is also expected from its recent acquisition of Sourcefire, for which Cisco paid an amount that equals the amount of cash that Juniper has — $2.8 billion. Juniper has no such option to think about. On basis of excellent cash flows and good growth opportunities, Cisco, in my opinion, is one of the best dividend stocks in the market.
Alcatel Lucent SA (ADR) (NYSE:ALU) is in a mess as far as fundamentals are concerned. CEO Michel Combes had come up with a strategy, which he referred to as “The Shift Plan” that is aimed to streamline the company’s operations by diverting focus from some of its multiple projects to a few key business units. According to the plan, Alcatel-Lucent will focus on cutting costs and sale of assets in a restructuring program slated for completion in 2015.
Alcatel-Lucent delivered improved financial results in 2Q13, which showed revenue growth and a positive operating margin as highlights. However, the gross margin continues to lag peers and is unlikely to grow substantially until margin-unfavorable business segments are either reduced or divested.
In my opinion, it would be worthwhile to watch this company from the sidelines.
Conclusion
While Juniper doesn’t have the financial muscle or size of Cisco Systems, Inc. (NASDAQ:CSCO), the company’s product development initiatives do look good and have enabled it to perform well so far. The stock is presently trading near its 52 week high with a trailing P/E of 38, but analysts are expecting solid growth in earnings in the future of around 15% per annum over the next five years. Given the innovation of the company, it looks like it will be able to achieve earnings growth and the stock should continue appreciating in the future.
ANUP SINGH has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, Inc. (NASDAQ:CSCO).
The article This Stock Looks Good Even at 52-Week Highs originally appeared on Fool.com and is written by ANUP SINGH.
ANUP is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
