With a huge build-out Verizon Inc.’s (NYSE: VZ) 100G network and data centers increasing connectivity, network speeds and latency, the potential for substantial business to be generated by the leaders in the network segment is growing. A new research note from the analysts at UBS profiles the increase in short interest in some top tech stocks in the firm’s universe. Should capital expenditures exceed current modest estimates for 2015, the top stocks could see big investor interest.
The UBS research piece also included a list of the firm’s “Most Preferred” stocks, and we focus here on the four top companies: Ciena Corp. (NASDAQ: CIEN), Cisco Systems Inc. (NASDAQ: CSCO), Juniper Networks Inc. (NYSE: JNPR) and JDS Uniphase Corp. (NASDAQ: JDSU).
Ciena is a leading maker of fiber optic networking equipment sold to telecom carriers. The company is expected to get a large chunk of Verizon’s 100G network build-out, with some analysts thinking the company could see as much as 30% of the total. Other analysts on Wall Street feel that Verizon could end up being as much as a 10% customer next year.
In addition to the Verizon deal, Other Wall Street analysts have pointed in recent reports that a majority of enterprise and Web/cloud data centers are in the process of running high-speed 40/100G optical interconnects between their data centers. This could also mean added business for Ciena.
The UBS price target for the stock is $25. The Thomson/First Call consensus price target is slightly lower at $24.89. Shares closed on Friday at $19.17.
Cisco Systems is also expected to get a significant chunk of the Verizon build out, and while it will be relatively small in the revenue big picture at the networking giant, it is a big new business type win for the company. The stock remains many analysts’ top mega-cap idea in the sector on the theme of improving IT spending, IT and telco network integration projects and a positive global macro environment.
After posting terrific earnings last time out and raising the company’s dividend payout to shareholders, Cisco may be one of the most attractive technology stocks to buy now on a sheer valuation basis.
Cisco investors are paid a very solid 3.1% dividend. The UBS price target is $32, and the consensus target is $30.17. The shares closed the day Friday at $27.13.
Employee layoffs last summer dented the balance sheet at Juniper Networks, and it has been fighting its way back since. Positive activist shareholders moves combined with a solid product cycle have made the stock a recent favorite, so its trip to the woodshed last year may be just the ticket for investors looking to buy shares. The company has a big presence in network and enterprise security and could possibly be a merger or straight-out takeover target.
Juniper and Mirantis recently announced an expanded engineering partnership that provides customers with a reliable, open-source software-defined networking (SDN) fabric to deploy OpenStack clouds at scale. According to a recent report by 451 Research, the OpenStack market size is estimated to reach $1.7 billion by 2016. Enterprises and service providers are increasingly looking to open-source software for its increased flexibility, cost savings, no vendor lock-in and the ability to customize integration with other infrastructure and applications.
Juniper investors are paid a 1.7% dividend. The UBS price objective is $27, and consensus target is much lower at $23.76. The stock closed Friday at $22.29 a share.
This pioneer of the optical revolution began in the 1990s and announced last year a plan to split into two separate companies. One will be an optical and laser company, while the second will be a network and service enablement company. Many Wall Street analysts have felt that this is a very positive catalyst for shareholders. In addition, company management remains very confident about the prospects of the business as the need for bandwidth across the world increases. As a result, JDS Uniphase is seeing strong demand in the Americas for its 100G products and LTE solutions.
Recent analyst discussions with the company have been centered on the growth potential of its fiber laser offering, which generated an annualized $60 million in revenue in the most recent quarter. The newest generation of offerings has up to 6 kilowatts of output power. Some on Wall Street have also hinted at a possible Finisar Corp. (NASDAQ: FNSR) and JDS Uniphase transaction or merger.
The UBS price target is $17, but the consensus price target is posted at $14.23. The stock closed Friday at $12.98 a share.
The slightest uptick in capital spending and the continued need for network and data center expansion should keep these top companies very busy in the coming months and years. These stocks all could make good sense in an aggressive growth portfolio.