Is This the Start of the Analyst Upgrade Cycle for Juniper?
Nomura/Instinet upgraded Juniper to a Buy rating from Neutral and raised the price target to $34 from $28. This implies upside of 18.9% from the most recent closing price of $28.59.
Jeffrey Kvaal, the analyst on the call, detailed in the report:
We believe Juniper will finally be able to catch the webscale capex growth tailwind in 2019. We expect Juniper to recover from its webscale routing annus horribilis, gain share in webscale switching, and continue its enterprise growth. New security and routing products may be an ephemeral salve for the service provider unit. We lift our 2019 sales estimate to 5% from the consensus 3%, which lifts our target to $34 and our rating to Buy. Juniper’s analyst day is 11/9.
Overall, the firm expects webscale spending to remain the key market growth driver. Specifically, the webscale capex is expected to rise 40% in 2018. Instinet’s out-year forecast — currently 16% for 2019 — has typically proven conservative.
Instinet is confident Juniper’s declining webscale revenue in 2018 results from lower PTX product series average selling prices. The firm does not believe Juniper’s dominant data center interconnect webscale routing share has slipped. As the MX to PTX series migration is about 80% complete, ongoing robust port growth should restore webscale routing growth in 2018.
Enterprise growth should remain solid going forward. Enterprise growth has recovered to 5% to 10%, aided by a security recovery. Contrail software and an EX series refresh are expected to at least hold growth steady in 2019 — the firm models 7%.
Instinet went on to say:
Our 5% sales growth estimate drives disproportionate EPS gains. We lift our prior consensus 3% growth estimate to 5%. The volume growth brings our margin estimate part way back to 2016 peaks and lifts our 2019E EPS from $2.05 to $2.14. Our $34 target is 14.0x our 2020E EPS of $2.40 (consensus is $2.20).
Shares of Juniper were last seen up 1.5% at $29.04 on Wednesday, with a consensus analyst price target of $26.79 and a 52-week trading range of $23.61 to $29.95.
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