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Juniper Networks: Can Cloud Inspire a Turnaround?

Shares of Juniper Networks Inc. (NYSE:JNPR) are down more than 7% since the start of the week. The company released its fourth-quarter and full-year 2019 results last week, in which revenue was in line with expectations while GAAP earnings were slightly better than expected. At a price of $22.82 per share at the time of this writing, the company's stock is now trading near multi-year lows of about $22.60.

Juniper Networks is a multinational telecommunications company that develops and markets networking products, including routers, switches, network management software, network security products and software-defined networking technology.

Recent quarter and full-year 2019 highlights

Over the last few years, Juniper's top line has continued to shrink with revenue declining in each of the last nine quarters. This changed in the most recent quarter after the company reported top-line growth of 2.3% year over year to $1.21 billion.

However, due to top-line weaknesses in the preceding quarters, overall revenue for 2019 declined by 4.3% to $4.445 billion. The yearly GAAP net income also edged lower to $345 million, or $0.99 per share, down from $566.9 million, or $1.60 per share in 2018.

Despite the consistent decline in net income over the last few quarters, Juniper continues to deliver positive earnings surprises. If this trend continues, the company's top line could be about to turn a corner.

Growth in cloud business could be offset by a slowdown in the service provider unit

Analysts are forecasting an unchanged top line for full year 2020, which would be a good time to start the turnaround process.

This will be largely driven by the rapid growth of cloud revenues. In the most recent quarter, Juniper's cloud revenues increased by 17.8% year over year, driven by routing and services. This segment of the business could continue to experience exponential growth in the coming quarters due to the growth of the networking market.

Businesses continue to embrace modern communication technologies for in-house and external communications. The outsourced services market, which comprises business communications facilitators, is also experiencing growth as small and medium-sized businesses adopt modern modes of operations at cut-sized budgets.

However, the service provider unit could slow the company's growth by offsetting gains made in the cloud business. In the fourth quarter, the company reported a 4.6% decline in revenue to $492 million from this unit compared to the same period in 2018. Therefore, while analysts expect the company's run of top-line declines to end this year, it could be a while before growth is achieved.

Does the company still offer value for the money at the current price?

Shares of Juniper Networks are trading at about 23 times earnings, which is relatively in line with the industry average. Its closest peers, Cisco Systems (NASDAQ:CSCO) and Arista Networks (NYSE:ANET), trade at price-earnings ratios of 18.78 and 24.42, respectively. This makes the company's stock significantly unattractive to value investors, especially due to the weak growth outlook.

In the promising cloud services business, the company faces stiff competition from industry giants such as Microsoft Corporation's (NASDAQ:MSFT) Azure and Amazon.com Inc's. (NASDAQ:AMZN) Web Services. This could further provide a challenge to the company's growth prospects. However, Juniper also pays a healthy dividend. The current yield stands at 3.51%, which could be attractive to dividend investors.

Disclosure: No positions in stocks mentioned.

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This article first appeared on GuruFocus.