Elliott Management revealed that it has big plans for Juniper Networks, Inc. (NYSE:JNPR), and Citi analysts apparently like the firm’s suggestions. They increased their price target for the company based on Elliott’s new stake in the company and also the firm’s “value plan” for Juniper.
Elliott discloses 6.2% stake
On Monday, Elliott Management reported having a 6.2% stake in Juniper Networks, Inc. (NYSE:JNPR). The firm set forth its so-called “value plan” in 27 slides. Included in the firm’s suggestions for Juniper are a $200 million reduction in operating expenditures, most of which would come from research and development, a $3.5 billion share buyback, a .125 per share quarterly dividend, a committed 50% free cash flow return policy and a review of Juniper’s underperforming stock and also switching businesses.
Citi raises Juniper’s price target
Citi analysts Ehud Gelblum and Kimberly Watkins say they bumped up their price target from $22 to $27 per share because they think the plan from Elliott sets a floor for the company’s stock. They also think it increases the likelihood that Juniper will materially cut costs and complete what could end up being its biggest historical buyback.
They left their 2014 earnings per share estimate for Juniper Networks, Inc. (NYSE:JNPR) unchanged at $1.39 per share. However, they raised their multiple to 19.7 times, which they say is the company’s five-year average. They say Elliott has a good track record in terms of creating catalysts for the performance of stocks. Here’s a look at some of the firm’s transactions over the last three years, courtesy Citi analysts:
Citi analysts also note that Juniper’s spending in research and development is well above that of its peers and say that Elliott makes a good case for the company’s need to cut spending in this area.
Can Juniper Networks do all of this?
They remain skeptical that Juniper Networks, Inc. (NYSE:JNPR) can really slash $200 million from its operating expenditures without impacting its topline growth. That would be about a 10% cut. Juniper did say in 2012 that it would cut its operating expenditures by $150 million in 2013, but later the company retracted to a $40 million decline.
Nonetheless, they think Juniper’s new CEO, Shaygan Kheradpir, who just took the helm on Jan. 1, could end up supporting Elliott’s view. They expect to see him explain his strategy for improving value for shareholders soon, maybe even on the company’s fourth quarter earnings call, which is scheduled for Jan. 23.