Cantor Fitzgerald analyst Brian J. White takes a close look at Juniper Networks in light of an illuminating recent meeting with the CEO of the company.

Juniper Networks

Summary

On Friday, we had the opportunity to meet with Shaygan Kheradpir (CEO of Juniper) and discuss his first ten weeks on the job. In our view, Shaygan has already made a positive impact with the announcement of the company’s Integrated Operating Plan (IOP), and we believe this is only the beginning of constructive developments at the company. We walked away confident that Juniper Networks, Inc. (NYSE:JNPR) is well positioned to benefit from a reasonable carrier spending environment that we anticipate in 2014 and is properly equipped for the architectural changes in the network that we believe are imminent over the next few years.

Focused on Innovation that Supports the Economic Reality of Customers

We walked away impressed by Shaygan’s deep understanding of the latest tech trends and his ability to relate to the needs of his customers. Given Shaygan’s tech and operations background, we believe he will be a very important asset for Juniper in terms of improving the company’s operating efficiency, re-focusing Juniper Networks, Inc. (NYSE:JNPR) on its tradition of entrepreneurial innovation, and connecting with tech decision makers.

Increased Efficiency Drives Cost Savings, Simplicity and Innovation

We also discussed the company’s recently announced IOP that includes $160 million in annualized operating expense savings between 4Q:13 and 1Q:15 with an operating margin target of 25% in 2015. Our interpretation of this cost savings initiative is to operate smarter with a focus on greater efficiency by eliminating duplicative efforts within the company, while also eliminating those initiatives and roles that are no longer supported by customer demand. Shaygan believes greater efficiency improves simplicity, reduces bureaucracy, improves accountability and can often result in more innovative products.

We Believe Changing Network Architectures Will Benefit Juniper

In the past, networks across different industries were very different; however, networks at carriers, cloud service providers, web 2.0 companies and certain enterprises are increasingly converging to support these three secular tech trends. As such, a core router such as Juniper Networks, Inc. (NYSE:JNPR)’s PTX could be used by a financial institution, a web 2.0 company and others, no longer just focused on a telecom carrier’s network and thus we believe opening up new growth opportunities for Juniper Networks, Inc. (NYSE:JNPR). Also, we believe the trend toward Network Functions Virtualization (NFV) is already opening up new doors for Juniper.

Valuation

Firm’s 12-month PT for Juniper Networks, Inc. (NYSE:JNPR) of $37.00 is based on nearly 17x its CY:15 pro forma EPS estimate (adjusted for interest income/expense), plus Juniper’s net cash per share at the end of CY:15.