Juniper to Buy Contrail Systems

Zacks

Networking company Juniper Inc. (JNPR) recently announced the signing of an agreement to acquire software-based networking startup Contrail Systems for $176 million in cash. 

Contrail Systems primarily develops software to update and configure networking equipment instead of manually adjusting networking hardware. The recent acquisition is expected to help Juniper to stand its ground against stiff competition from rivals like Cisco Systems (CSCO).  

The to-be-acquired company currently has some test customers and does not have any products lined up for launch before 2013.

Juniper has been making small and strategic acquisitions to boost its portfolio in segments with good growth potential. Earlier, the company acquired web application security solutions provider Mykonos Software for $80.0 million in cash. The acquisition has allowed Juniper to tap the potential in the growing network security market. The network security market is growing constantly across geographical regions, as companies are slowly recognizing the need to protect their network security.

The emergence of network security as a growth proposition in recent times is mainly because of the increasing concerns related to web security, particularly for businesses that are trying to manage a growing number of personal devices at the workplace.

We believe that the recent acquisition will support technological enhancements, add scale and increase business volumes for the company.

We are positive on Juniper’s new product traction, focus on revenue growth, cost reduction initiatives such as, headcount reduction and improved execution related to the supply chain and procurement activities. Despite stiff competition from F5 Networks Inc. (FFIV) and Cisco Systems Inc., we believe that Juniper is well-positioned in the networking space and could capitalize on the worldwide spending on information technology.

The company has a Zacks #2 Rank, implying a Buy rating in the short term.

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