Juniper Stock Is Fully Valued After Its 48% Rally

-10.29%
Downside
37.06
Market
33.25
Trefis
JNPR: Juniper Networks logo
JNPR
Juniper Networks

Despite a 48% rise since the March 23 lows of this year, at the current price of around $25 per share we believe Juniper stock (NYSE: JNPR) has reached its near term potential. Juniper stock has rallied from $17 to $25 off the recent bottom, compared to the S&P which moved 50% over the same time period. A surge in demand for the company’s offerings for security solutions, as well as cloud and service provider services, has helped the stock perform at a similar level to the overall market. However, Juniper stock is down 8% from levels seen in early 2018, over two years ago. While Juniper stock has recovered and is similar to the level it was at in February before the drop due to the coronavirus outbreak becoming a pandemic, the stock seems to be fairly valued as of now. Our dashboard ‘Why Juniper Stock moved -8%?’ provides the key numbers behind our thinking, and we explain more below.

Some of the stock price decline over the last two years is justified by the roughly 11.6% fall in Juniper’s revenues from 2017 to 2019. However, this decline was partially offset by an increase in the net income margin from 6.1% in 2017 to 7.8% in 2019. This, combined with a 9.1% reduction in share count (due to stock repurchases worth $2 billion), helped Juniper’s EPS surge by nearly 25% during this period.

However, a sizeable drop in Juniper’s P/E multiple has more than offset the gains to its stock from an upbeat earnings trend. The company’s P/E multiple dropped from 34x at the end of 2017 to 24x by the end of 2019. While the company’s P/E has now increased to 25x, it seems to be fairly valued when the current P/E is compared to levels seen in the past years, like a P/E of 24x at the end of 2019. We believe the stock is appropriately priced, and the stock is unlikely to see upside after the recent rally and the potential weakness from a recession-driven by the Covid outbreak.

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How Is Coronavirus Impacting Juniper’s Stock?

The global spread of coronavirus has adversely affected industrial and economic activity. This is likely to adversely impact Juniper’s revenues as major companies are likely to delay expenses related to upgrading infrastructure and software. However, digital usage has received a real push as most employees are working online and working from home. Even the brick and mortar companies have been forced to experiment with the digital channel. This has boosted demand for the company’s offerings for security solutions as well as cloud and service provider services. During Q2 2020 earnings (ending June), Juniper saw a surge in demand for its solutions related to critical (security) application infrastructures.  The company also witnessed increased demand for capacity as customers looked to scale their remote access capabilities. In addition, Juniper has largely remained immune from the impact of Covid-19, and we expect these tailwinds to persist. Even if the situation worsens, the company is in a better position than other companies to face the repercussions of the outbreak due to its unique business model.

Moreover, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus, which set a floor on fear, the market has been willing to “look through” the current weak period and take a longer-term view,  with investors now mainly focusing their attention on 2021 results.

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