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Juniper Initiates Share Buyback; Prices Notes

Zacks Equity Research

As part of its new capital allocation strategy, Juniper Networks (JNPR) entered into an accelerated share repurchase (ASR) agreement with Barclays Bank plc and Goldman, Sachs & Co.

Per the agreement, Juniper will purchase shares worth $1.2 billion from the two entities with the cash in hand. As of Dec 31, 2013, the company had $2.28 billion in cash and $561.9 million in short-term investments.

Juniper’s new capital allocation strategy also requires it to return $3 billion over the next three years. Per the strategy, shares worth $2 billion are to be repurchased (including the current ASR program) by the end of the first quarter of 2015. The balance is to be distributed as dividends that will be initiated from the third quarter of 2014.

Considering the company’s strong cash generating abilities ($842.3 million in fiscal 2013), these initiatives are expected to boost investors’ confidence and aid earnings as well.

Separately, the company has also priced its $350 million senior notes with an annual interest rate of 4.50%. The senior notes have a maturity date of Mar 15, 2024. The company expects to use the funds raised for general and corporate purposes that includes acquisitions and other expenses related to working capital and capital expenditures.

Although the current fund raising would increase Juniper’s debt burden, it has a strong balance sheet with a net cash of $1.29 billion.

Increased spending by service providers should also support Juniper’s near-term fundamentals. The company’s expansion into the software defined network segment is expected to strengthen its position in the networking space.

While the company’s new products, cost reduction initiatives and improving execution remain the growth catalysts, increasing competition from Cisco (CSCO), AT&T (T) and F5 Networks Inc. (FFIV), uncertain economic conditions and constricted federal spending are the possible headwinds.

Currently, Juniper has a Zacks Rank #2 (Buy).

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