3 Reasons This Analyst Is Positive On Juniper Networks

Shares of networking products company Juniper Networks, Inc. JNPR are experiencing a valuation-sentiment disconnect, according to Oppenheimer.

The Analyst

Oppenheimer analyst Ittai Kidron upgraded Juniper from Perform to Outperform and established a price target of $33.

The Thesis

Recent Amazon.com, Inc. AMZN weakness is due to a construction delay at an Amazon data center and an architectural change and not due to competitive displacement, Kidron said in a Monday note. The analyst expects to see improvement in the second half of 2018.

Tax reform positively impacts Juniper's free cash flow and increases the potential for a large buyback, Kidron said. The analyst expects the company's non-GAAP tax rate to fall from an average of 26 percent over the 2015-2017 period to about 17 percent, driving $100 million in incremental free cash flow annually.

If Juniper chooses to repatriate even half of the 84 percent of cash, cash equivalents and short-term investment it holds overseas, and use these for share repurchase, it could reduce its share count by 10 percent, Oppenheimer said. Under such a scenario, the firm sees multiples declining across the board.

Longer term, Juniper could suffer challenges, as routing is cannibalized by switching and campus switching struggles due to a lack of WLAN, Kidron said, but the overly bearish sentiment and the valuation discount following the tax reform set up a near-term opportunity.

"While it could take a few quarters for factors to be fully reflected in shares, we see solid upside opportunity," the note said.

The Price Action

Juniper Networks shares are up 3.5 percent over the past year, trading recently around $28.23.

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