Where is JNPR’s bargain price?

December 28, 2018

Where is JNPR’s bargain price?

While the market has been using the days since the Christmas break to rally higher, leading some investors to believe that perhaps the sky isn’t falling just yet, the fact is that the market remains extremely volatile right now, with plenty of uncertainty ahead. That means that we’re not out of the woods just yet, and it’s still a good idea to be cautious and very selective about taking on new trades. I think that it also means that the hunt for great value is going to get more interesting; a smart value investor should be building a watchlist of interesting stocks to keep track of, and identify the price levels at which you think the opportunity is just too good to pass up.

Putting together a good watchlist can mean a lot of different things, depending on what your investment preferences are, the kinds of stocks that you find to be the most interesting, and how much time you want to spend tracking a basket of stocks on a daily basis. Personally, I like to try to keep a fairly broad mix of stocks across as many sectors as I can, so that I can increase my chances of finding useful trades no matter what the overall market may be doing. Despite that intent to be as diversified in my analysis as I can, I find myself also gravitating naturally to a few industries in particular. The tech sector is one such segment, because some of my professional background includes a significant amount of time working in information technology and networking.



The market’s treatment of the sector has meant that a lot of the stocks I’ve kept track of are pretty beat up right now, which isn’t great news for the tech stocks I currently hold, but also opens the door to what I think are going to be some pretty interesting opportunities in the months ahead. So I’m keeping a lot of notes about some of those stocks, including where I think the value story becomes really compelling.

Juniper Networks (JNPR) is an example of the kind of stock talking about; they’re a solid, mid-cap player in the telecommunications and networking industry that has offered some useful investing opportunities for my investing method in the past. I’m not sure their price offers the kind of bargain I’m looking for just yet, but since the first week in November, the stock is down more than 13%, putting it well in to its own correction territory, and not far from where I think the value proposition is going to be really interesting.



Fundamental and Value Profile

Juniper Networks, Inc. designs, develops and sells products and services for high-performance networks to enable customers to build networks for their businesses. The Company sells its products in over 100 countries in three geographic regions: Americas; Europe, the Middle East and Africa, and Asia Pacific. The Company sells its high-performance network products and service offerings across routing, switching and security. Its products address network requirements for global service providers, cloud providers, national governments, research and public sector organizations, and other enterprises. The Company offers its customers various services, including technical support, professional services, education and training programs. The Company’s Junos Platform enables its customers to expand network software into the application space, and deploy software clients to control delivery. The Junos Platform includes a range of products, such as Junos Operating System (OS) and Junos Space. JNPR has a current market cap of about $9.3 billion.

  • Earnings and Sales Growth: Over the last twelve months, earnings declined about 12.7%, while revenues decreased a little more -6%. These numbers improved in the last quarter, as earnings increased more than 20.5%, and sales declined about -2%. The company’s margin profile shows that Net Income as a percentage of Revenues have improved impressively from 4.8% over the last twelve months to 18.9% in the last quarter.
  • Free Cash Flow: JNPR’s free cash flow has declined over the past year, but remains healthy at almost $700 million; that number translates to a Free Cash Flow Yield of about 7.61%.
  • Debt to Equity: A has a debt/equity ratio of .38. This is a conservative number. JNPR currently has a little over $3.3 billion in cash and liquid assets against only $1.7 billion in long-term debt. The company’s balance sheet indicates their operating profits are more than adequate to service the debt they have, but they also have excellent liquidity to provide additional financial flexibility.
  • Dividend: JNPR’s annual divided is $.72 per share; that translates to a yield of 2.68% at the stock’s current price.
  • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for JNPR is $13.49 per share, and which translates to a Price/Book ratio of 1.98 at the stock’s current price. It’s useful to note their Book Value has improved in each of the last two quarters, and has increased more than 30% since mid-2015. Their historical average Price/Book ratio is 2.23, suggesting suggests the stock is currently trading at a discount of about 11%. The stock’s Price/Cash Flow ratio however, suggests the stock is somewhat over-valued, by about 9%. On a Price/Book basis, the stock would need to drop just below $24 per share to start offering a really attractive value proposition, while the Price/Cash Flow ratio puts a lower value target around $19 per share.



Technical Profile

Here’s a look at the stock’s latest technical chart.

 

  • Current Price Action/Trends and Pivots: The last two days have helped JNPR rebound prettynicely from a pivot low a little below $26 per share, but the stock’s short-term downward trend since early November is easy to see. Based on previous pivots, the stock is approaching resistance between $27 and $27.40 per share, and I do expect the stock to reverse off of that resistance point and test support around $25.50. If it breaks below that support, look for the stock to revisit its 52-week lows around $23.50 to $24 per share. If it continues to push to new 52-week lows beyond that point, the next support level is around $21 per share. The stock would need to break above resistance, to at least $28 per share to establish an actual short-term bullish trend reversal.
  • Near-term Keys: While I think the stock is unlikely to reverse its short-term downward trend right now, a move to $28 could offer an interesting opportunity to buy the stock or work with call options with a short-term target price around $30 per share. I believe, however that the better, higher probability short-term opportunity is likely to come on the bearish side, with a break below $25.50 offering an opportunity short the stock or buy put options to with an on the $23.50 range. If the stock does start to test those 52-week lows, the valuation story is going to get a lot more interesting, however, and that could be the point where a good long-term opportunity will be had to buy this good stock at a nice price.