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What's in Store for Juniper (JNPR) This Earnings Season?

Zacks Equity Research

Juniper Networks, Inc. JNPR is scheduled to report second-quarter 2019 financial results on Jul 25, after the closing bell. In the last reported quarter, the company delivered a positive earnings surprise of 23.8%. Notably, Juniper surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average positive surprise being 15.4%.

The computer network equipment maker continued to experience weakness within the cloud and service provider verticals. Its cloud business remained challenged as several of its large customers are running their networks harder and due to decline in average selling price.

However, the company believes that investments in go-to-market organization, new product introductions to the market and the acquisition of Mist Systems should position it for long-term gain. Let’s find out how things are shaping up prior to the announcement.

Factors at Play

Juniper is expected to experience incremental benefit from its deal with LINE Corporation — a leading instant messaging application operator. In March 2019, LINE strengthened its long-standing partnership with Juniper. The company was chosen by LINE to assist its exponential growth in traffic demands, on account of a burgeoning user base of more than 164 million customers per month across four countries.

During the second quarter, Juniper announced that Colruyt Group, one of the largest retailers in Belgium and France, has deployed its networking solutions to improve data connectivity and cater to exponential growth in network traffic. The digital transformation is expected to better serve the customers of the retail chain by maximizing bandwidth and reducing latency, while ensuring network security and stability.

Moreover, Juniper launched a cloud-delivered version of its SD-WAN solution, the most scalable offering available in the market. This offered Juniper’s Contrail Service Orchestration to provide enterprises a simple way to manage and secure the WAN infrastructure along with LAN and Wi-Fi networks, typically deployed alongside it.

Mist Systems announced a distribution agreement with Ingram Micro Inc., a leading provider of global technology and supply chain services. Ingram Micro will now provide unique marketing programs, logistics services, technical support, financial services and product aggregation and distribution across the United States for all Mist products, facilitating the adoption of AI-driven wireless networks.

Furthermore, Juniper was selected by BT Group plc — a renowned global service provider — to deliver its Network Cloud infrastructure initiative. Markedly, the move to a single cloud-driven network infrastructure will likely allow BT to offer wider range of services, more efficiently to customers in the United Kingdom and around the world. It is expected to help BT’s Network Cloud rollout while enabling a more flexible, virtualized network infrastructure that can deliver the technology requirements of businesses.

For the June quarter, the company’s revenue outlook reflects normal seasonal trends. It expects revenues to be around $1,100 million (+/- $30 million). Non-GAAP gross margin is projected to be about 59.5% (+/- 1%) and non-GAAP operating expenses are likely to be $485 million (+/- $5 million). Non-GAAP operating margin is predicted to be 15.5%, at the mid-point of the revenue guidance. Non-GAAP net income per share is anticipated to be nearly 39 cents (+/- 3 cents), assuming a share count of about 350 million.

Top-Line Contraction

Despite the positives, unfavorable global macro environment and weak investment patterns among customers are likely to have dampened Juniper’s revenue growth. Ongoing consolidations in the telecom industry have also put considerable pressure on the company’s financials. Its Cloud revenues are expected to decline to $240 million from $280 million reported in the year-ago quarter, due to slower-than-expected pace of deployments among its hyperscale customers.

For the second quarter, net revenues from Routing are projected to decrease to $436 million from $491 million, reported a year ago. Net revenues from Switching are expected to fall to $210 million from $255 million, while the same from Security is likely to slightly improve to $82 million from $80 million.

The Zacks Consensus Estimate for revenues from the Product segment (comprising Routing, Switching and Security products), which accounts for the lion’s share of total revenues, is pegged at $727 million. The company reported $825 million in second-quarter 2018. Revenues from the Service segment are anticipated to increase to $400 million from $379 million.

Consequently, total revenues for the quarter are estimated to fall to $1,107 million from $1,204 million, reported in the year-earlier quarter. Adjusted earnings per share are pegged at 40 cents. The company reported earnings of 48 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’ll 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 40 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. price-eps-surprise | Juniper Networks, Inc. Quote

Zacks Rank: Juniper currently has a Zacks Rank #3, 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:

Verizon Communications Inc. VZ with an Earnings ESP of +0.43% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

NETGEAR, Inc. NTGR with an Earnings ESP of +1.01% and a Zacks Rank #3.  

Ciena Corp. CIEN with an Earnings ESP of +5.26% and a Zacks Rank #2.

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