Juniper Networks, Inc. (NYSE:JNPR), a large-cap worth US$9.7b, comes to mind for investors seeking a strong and reliable stock investment. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the health of the financials determines whether the company continues to succeed. I will provide an overview of Juniper Networks’s financial liquidity and leverage to give you an idea of Juniper Networks’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into JNPR here.
JNPR’s Debt (And Cash Flows)
Over the past year, JNPR has maintained its debt levels at around US$2.2b – this includes long-term debt. At this current level of debt, JNPR's cash and short-term investments stands at US$3.6b to keep the business going. On top of this, JNPR has produced US$861m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 39%, meaning that JNPR’s debt is appropriately covered by operating cash.
Can JNPR pay its short-term liabilities?
Looking at JNPR’s US$1.8b in current liabilities, the company has been able to meet these commitments with a current assets level of US$4.6b, leading to a 2.49x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Communications companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is JNPR’s debt level acceptable?
With a debt-to-equity ratio of 46%, JNPR can be considered as an above-average leveraged company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can check to see whether JNPR is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In JNPR's case, the ratio of 19.14x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as JNPR is a safe investment.
Although JNPR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how JNPR has been performing in the past. I suggest you continue to research Juniper Networks to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JNPR’s future growth? Take a look at our free research report of analyst consensus for JNPR’s outlook.
- Valuation: What is JNPR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JNPR is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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