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Will Lower Revenues Dampen Juniper's (JNPR) Q4 Earnings?

Zacks Equity Research

Juniper Networks, Inc. JNPR is scheduled to report fourth-quarter 2018 financial results after the closing bell on Jan 29.

In the last reported quarter, the company delivered a positive earnings surprise of 22.7%. Notably, Juniper surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 11%.

Volatile demand and intense market competition are likely to have affected the company’s revenues. Let’s find out how things are shaping up prior to the announcement.

Factors at Play

During the fourth quarter, Juniper’s Metro Fabric solutions were picked by Epsilon for the latter’s global network upgrades to power IoT applications and enterprise services. The company’s Metro Fabric unifies Metro Ethernet, cable, broadband, mobile and cloud-based offerings into a single control domain.

Juniper also strengthened its collaboration with Nutanix by announcing new initiatives under their partnership, which aims to simplify the transition process of enterprises to multicloud environments. Notably, both the companies collaborated on providing seamless integration between virtual and physical networks for automated network management. The alliance involves the integration of Juniper’s Contrail Enterprise Multicloud with Nutanix APIs.

During the quarter, Juniper announced that CENIC, a non-profit network provider connecting California’s education and research institutions with the world, has simplified its infrastructure leveraging Juniper’s MX Series 5G Universal Routing Platform for current 10GbE and future 100GbE service growth.

Furthermore, Juniper announced that its advanced multicloud visualization and analytics platform Juniper AppFormix and security solution Juniper Networks Advanced Threat Prevention Appliance were integrated into NEC Networks & System Integration Corporation’s FA Network Monitor solution.

The company also unveiled new offerings as part of the Juniper Networks Advanced Threat Prevention Appliances. The solution helps businesses to detect malware, understand behavior as well as mitigate threats with a single touch.

The telecommunications equipment provider expects Chinese tariffs not to have material impact on its fourth-quarter results. However, customer buying behavior could be affected and gross margin may be adversely impacted.

Top-Line Contraction

Despite the positives, unfavorable global macro environment and weak investment patterns among customers are likely to have hampered Juniper’s revenue growth. Ongoing consolidation in the telecom market is also expected to weigh on the company’s financials. Moreover, Cloud revenues, which are expected to be $257 million in the to-be-reported quarter, is facing challenges due to slower pace of expected deployments from cloud customers.    

For the fourth quarter, net revenues from Routing are expected to decrease to $503 million from $510 million a year ago. Net revenues from Switching are expected to increase to $237 million from $233 million, and the same from Security is likely to decline to $87 million from $88 million.

The Zacks Consensus Estimate for revenues from the Product segment (comprising Routing, Security and Switching products), which accounts for the lion’s share of total revenues, is currently pegged at $823 million. It reported $830 million in fourth-quarter 2017.

Revenues from the Service segment are expected to decline to $403 million from $409 million. Consequently, total revenues for the quarter are likely to fall to $1,229 million from $1,240 million reported in the year-earlier quarter. Adjusted earnings per share are pegged at 57 cents. The company reported earnings of 53 cents a year ago.

What Our Model Says

Our proven model does not conclusively show that Juniper is likely to beat earnings this quarter as it does not possess one of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Juniper’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 57 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Juniper Networks, Inc. Price and EPS Surprise


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

Zacks Rank: Juniper currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

HCA Healthcare, Inc. HCA has an Earnings ESP of +2.09% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Equity Residential EQR has an Earnings ESP of +0.82% and a Zacks Rank #2.  

Illumina, Inc. ILMN has an Earnings ESP of +0.32% and a Zacks Rank #2.

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