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Cloud Computing Weakness to Hurt Juniper's (JNPR) Q3 Earnings

Zacks Equity Research

Juniper Networks Inc JNPR is set to release third-quarter 2017 results on Oct 24.

Notably, the company has a positive record of earnings surprises in each of the trailing four quarters, with an average surprise of 7.85%. In the last quarter, Juniper delivered a positive earnings surprise of 5.56%.

Nevertheless, third-quarter results are anticipated to suffer from weakness in the cloud computing segment. The weakness in cloud computing segment is likely to hurt switching business, which surged 31.9% year over year to $276 million.

The Zacks Consensus Estimate for revenues for the Switching segment is currently pegged at $276 million.

Management recently lowered its revenue outlook in the range of $1.25-$1.26 billion, down from previous expectation of $1.29-$1.35 billion.

Moreover, earnings are now projected in the range of 54-56 cents per share, down from previous guidance of 55-61 cents.

Notably, Juniper’s shares have lost 8.7% of its value year to date compared with the 4.8% decline of its industry.

 

 

Intensifying Competition Hurts Router Segment

Juniper is facing significant pricing pressure amid intensifying competition in the network equipment market from the likes of Arista Networks Inc ANET , Cisco Systems Inc CSCO and others including white-box vendors.

The company’s routing business has been hurt by this competition. In the last quarter, routing category revenues remained almost flat at $572.5 million. The Consensus Estimate for the Routing segment is currently pegged at $589 million.

Unfavorable Customer, Product Mix to Hurt Gross Margin

Juniper’s expansion into low-margin Asia-Pacific market adversely impacted customer mix, which is expected to affect profitability.

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 quarter.

Expanding Portfolio to Offset Weakness

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.

Juniper Networks, Inc. Price and EPS Surprise

 

Juniper Networks, Inc. Price and EPS Surprise | Juniper Networks, Inc. Quote

 

Unfavorable Rank, Negative ESP

We believe that Juniper is unlikely to deliver a positive earnings surprise in the third-quarter due to an unfavorable combination of Zacks Rank #4 (Sell) and Earnings ESPof -2.71%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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