Cantor Fitzgerald analyst Brian J. White rates Juniper Networks, Inc. (NYSE:JNPR) as a Buy as Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is considering combining its Networks division with Juniper Networks.

Nokia Corporation (ADR) (NOK)

Thursday morning, Bloomberg indicated that Manager Magazin reported that “Nokia is considering combining its networks division with Juniper Networks.” The Bloomberg report goes on to mention that Manager Magazin indicated “a takeover of Juniper Networks, Inc. (NYSE:JNPR) was discussed by Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s board earlier this year.” Given the changes in the IT world and the ramp of the mobile Internet, we have long considered the networking world an attractive asset for wireless infrastructure players and large IT vendors. In our view, a combination of the two companies would make sense as the networking and wireless worlds converge. Next week, both companies are attending Mobile World Congress, and we will also be at the event.

Juniper’s long-standing relationship with NSN

As a leading router vendor to carriers, with the addition of security and switch capabilities over the years, Juniper never developed competitive wireless capabilities. As such, Juniper has relied on relationships over the years with Ericsson (ADR) (NASDAQ:ERIC) and Nokia Siemens Networks (NSN). In fact, Juniper previously held a 60% interest in a joint venture with NSN that was effectively terminated in 1Q:13. Although Juniper Networks, Inc. (NYSE:JNPR) tried to enter the mobile packet core market with a product called MobileNext, the company shut down this initiative in late 2013.

Nokia may look to expand carrier infrastructure line

Nokia’s pending sale of its Devices & Services business to Microsoft Corporation (NASDAQ:MSFT) for €5.44 billion (~US$7.5 billion) in cash, which is expected to close in 1Q:14, provides Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) with more resources to engage in acquisitions and the opportunity to increase its focus on the mobile infrastructure market. Following the divestiture of the Devices & Services business to Microsoft, Nokia has highlighted plans to focus on three established businesses: 1. NSN – wireless infrastructure with annualized sales of $17.1 billion; (Nokia bought out Siemens in the NSN joint venture in August 2013); 2. HERE – location cloud platform; 3. Advanced Technologies – technology innovator and patent portfolio.

More Scale and a Deeper Portfolio for Carriers

In our view, a combined Juniper Networks, Inc. (NYSE:JNPR) and Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) would provide for greater scale and portfolio breadth for the carrier market. Based on the 4Q:13 revenue run rate at both Juniper and Nokia (ex divestiture), the combined company would have annualized revenues of approximately $24 billion.

Valuation

Our 12-month price target of $35.00 for Juniper is based on just over 17x our CY:15 pro forma EPS estimate (adjusted for interest income/expense), plus Juniper Networks, Inc. (NYSE:JNPR)’s net cash per share of $6.31.