Juniper Networks: Get Out While The Getting’s Good. Says Goldman

Juniper Networks: Get Out While The Getting’s Good. Says Goldman

Goldman Sachs analysts Simona Jankowski, Kent Schofield, Justin Jordan and Doug Clark maintain their Sell ratings for Juniper Networks, Inc. (NYSE:JNPR) as Elliott Management discloses a 6.2% stake in the company.

Elliott Management discloses stake in Juniper Networks

Elliott Management disclosed a 6.2% stake in Juniper Networks, Inc. (NYSE:JNPR) today and released a presentation detailing its plans to drive shareholder value. It detailed three key initiatives it believes would result in a $35-40 share price: (1) opex cuts, (2) a $3.5bn share repurchase program and ongoing commitment to return 50% of FCF to shareholders, and (3) streamlining the product portfolio.

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Activists interested in Juniper

We have previously noted that a more aggressive capital allocation strategy or investor activism is an upside risk to our Sell thesis and could potentially make us more positive on the stock. In our January 3, 2014 report, “Getting more selective as key CommTech drivers decelerate in 2014”, we highlighted a potential pickup in activist investor interest as a key theme for the sector this year. Juniper Networks, Inc. (NYSE:JNPR) featured as a candidate for activist interest in all three screens presented in our activist investor framework in that report: (1) we estimated its 2013 capital returns (defined as buybacks and dividends, though Juniper does not have a dividend) at 48% of FCF, below the sector average of 80%, (2) its operating expenses are 45% of revenues, above the 35% median for companies with revenue growth below 10%, and (3) Juniper’s “firepower” for increased capital allocation, defined as funds available if it were to lever up to 1X and 2X net debt/EBITDA, is well above average for our sector. We maintain our Sell rating on structural and competitive issues in Juniper’s core routing, switching, and security segments. We will closely monitor the company (led by a new CEO as of Jan. 1) for signs that it may become a more aggressive capital allocator or cost cutter, which could potentially make us more positive.

Valuation and key risks

We maintain our 12-month price target of $17 for Juniper Networks, Inc. (NYSE:JNPR), based on a 14X CY14E P/E. Risks: Stronger service provider spending, improved positioning, capital allocation.

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