Juniper Networks, Inc. (NYSE:JNPR) has grown by just 8% this year, far less than the S&P 500 or its own peer group, and ten days ahead of the company’s conference call Elliot Management (which owns 6.2% of Juniper’s common stock) is telling the company what it wants to see happening to drive shareholder value.
“Juniper Networks, Inc. (NYSE:JNPR)’s stock has severely and consistently underperformed the market and its peer group by any objective measure and over any relevant time period,” says the Elliot report. “This underperformance has been driven by the Company’s outsized cost structure, inefficient capital structure, poor M&A track record and execution issues caused by unsuccessful extensions into security and enterprise switching.”
In case that sounds like hyperbole, Elliot shows that, really, every reasonable benchmark makes Juniper’s price growth look terrible.
Juniper pays more than any other tech firm
To get out of this situation, Elliot advocates a three-pronged approach involving cost-cutting, shares buybacks, and shedding unprofitable product lines.
Juniper Networks, Inc. (NYSE:JNPR) spends more on research and development as a percentage of revenue than most other tech companies, and it pays more than any of them (base salary for a software engineer is $159,990 compared to $127,143 at Google Inc (NASDAQ:GOOG) or $124,630 at Apple). If R&D costs were brought into line with Juniper’s peers the company would save $420 million, so Elliot argues that reducing costs by $200 million should certainly be achievable.
Juniper has more cash per market cap than Apple
Elliot also wants to see a $3.5 billion share repurchase program along with a $0.125/share quarterly dividend. It’s easy to think that unhappy investors pushing for share buyback program are more interested in the value of their shares than the long-term health of the company, but Juniper Networks, Inc. (NYSE:JNPR) has more net cash as a percentage of market cap than any other major tech firm – including Apple Inc. (NASDAQ:AAPL).
Juniper Networks, Inc. (NYSE:JNPR)’s decision to move into security and switching markets through expensive acquisitions has brought criticism in the past, and Elliot Management argues that Juniper Networks, Inc. (NYSE:JNPR)’s declining market share in routing (12% since 2005) can largely be credited to the distraction caused by the failed attempts. Since the company has gained significant market share in security or switching to make up for the losses, Elliot wants to see a ‘strategic review of the product portfolio,’ shutting down products that don’t contribute to the main business.
“We believe these value initiatives can collectively result in a stock price of $35-$40 per share, ~57%-77% above the current price,” says the Elliot report.