Juniper expected to exceed $1 billion in cash flow from operations this year

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Juniper expected to exceed $1 billion in cash flow from operations this year
Tue, 03/16/10 - 10:31pm Add your comment

RBC Capital Markets Managing Director - Mark Sue provides his assessment on Juniper's upcoming prospects:

"We're raising our estimates on Juniper as the service provider segment strengthens and as Juniper benefits from an increasing uptake of its core and edge routers. Our CY10 revenue forecast increases from $3.80B to $3.94B (+19% YoY) and compares to consensus of $3.86B; EPS increases from $1.15 to $1.20 vs. consensus of $1.17. CY11 EPS increases from $1.45 to $1.50. New target of $33 represents a 5-year average P/E of 24.5x applied to our blended CY10/CY11 earnings.

"Consistent operating margin recovery may enable the multiple to expand closer to 26x; Juniper has $5/share; un-levered, target represents a more reasonable 21x. North America (55%) may show the most positive trends near-term and a healthy spend with Japanese customers may further enable Juniper to post upside for March; consensus remains at $902M and $0.26. Beyond extrapolation of near-term positive service provider trends, strong traffic growth, capacity additions at major points of presence, data center expansion and broader adoption of routers by wireless carriers may provide ample opportunities for the core and edge router market to expand over the next 12-24 months. These are broad positive trends that should benefit Cisco as well."

Sue continued, "Juniper may have the added benefit of revamped products such as the MX 3D routers, the soon to be refreshed T-series, and a new layer 2.5 MPLS switch yet to be announced. Juniper may see a sharp ramp in its EX series (~$350-$400M this year) as it displaces defunct Nortel and gains incremental share (currently ~3%). 3Com has to contend with integration, Brocade is retrenching, and Extreme continues to struggle, in our assessment."

Sue added, "Operational improvements are an increasing focus at JNPR; we are looking for more disciplined SG&A and R&D spend to help improve overall OMs from our current ~22.1% to over 24% by YE. Juniper has already spent considerable R&D on its TRIO chipset, which may be leveraged across multiple platforms."

Sue concluded, "Cash generation remains strong at JNPR ($260M in 4Q09), and we look for JNPR to exceed $1B in cash flow from operations this year. And while some concerns remain on potential 'bad' acquisitions and 'poor' integration, JNPR's $1B share repurchase may point to an internal focus to drive growth instead."

What's your take Mark Sue's assessment of Juniper's upcoming prospects?