Goldman Sachs' Lack Of Confidence In Juniper Network's Routing Business Leads To Downgrade

The bullish case for owning Juniper Networks, Inc. JNPR's stock was partly based on strong expectations for its routing business, but consensus expectations may not align with the company's progress, according to Goldman Sachs.

The Analyst

Goldman Sachs' Rod Hall downgraded Juniper Networks from Neutral to Sell with a price target lowered from $26 to $21.

The Thesis

Juniper was approximately three quarters — or halfway — into the process of migrating cloud routing sales from MX and modular PTX to new, lower-priced and fixed-configuration PTX products as of the end of the first quarter, Hall said in the downgrade note. (See the analyst's track record here.) 

Investors may need to reset their revenue expectations lower through 2018, which implies downside to consensus estimates, Hall said. 

"We have built a detailed installed base model for the cloud routing business by decomposing Juniper's routing business" by end market and product category, the analyst said. 

The findings suggest that port growth in 2018 is unlikely to offset a significant average selling price decline in the new and cheaper PTX offerings based on expected replacement rate and net adds expectations, according to Goldman Sachs.

Consensus estimates are not necessarily making similar assumptions, which implies risks to out-year estimates, Hall said. Goldman Sach's 2019 EBIT estimates for Juniper Networks are already 10 percent below consensus estimates, and even this could prove to be "optimistic" given a poorer outlook, the analyst said. 

Price Action

Shares of Juniper Networks were trading lower by 3.86 percent at the time of publication Wednesday. 

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