Juniper Shares Are Ripe For A Turnaround; BMO Upgrades To Outperform

BMO Capital Markets upgraded shares of Juniper Networks, Inc. JNPR, reasoning that the shares of the company, which have underperformed in the year-to-date period, are ripe for a turnaround. The shares trade at 12 times the firm's 2018 earnings per share estimate for the company, with valuation near the bottom of its historical multiple range.

The firm believes the reversal will come about, as increasing credit is given to Juniper's switching business, customer diversification strategy, strong operating expenditure management and balance sheet flexibility.

Sustainable Strength In Switching

Analyst Tim Long is of the view the recent strength in switching is sustainable. Accordingly, the firm sees upside as Juniper better penetrated spine/core switching opportunities, with the QFX100000.

The firm expects Juniper's market share in core, which is currently at less than half of its edge/top-of-the rack share, to improve.

Expanding Into Cloud Verticals

The 27 percent contribution from the cloud vertical to total revenues is viewed by BMO Capital Markets as highlighting the company's increased diversification and less reliance on the traditional telco vertical.

"The cloud vertical has driven much of Juniper's recent growth and remains a significant growth opportunity as it architects its portfolio to meet cloud customer requirements," the firm said (see Long's track record here).

Low Expectations From Routers, Security

The firm said it has low expectations concerning routing and security. According to the firm, the routing business is affected by soft telco spending and instances of switching displacing routers, based on improving merchant silicon capabilities.

Meanwhile, on security, the firm believes the updated security portfolio may have come a bit late. However, due to low expectations, the firm believes any upside represents a call option on the shares.

As such, BMO Capital Markets upgraded shares of Juniper from Market Perform to Outperform and lifted its price target from $31 to $34.

At the time of writing, shares of Juniper Networks were up 2.69 percent at $29.22.

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