I like to keep a pretty broad watchlist of stocks that I can check up on every day. That watchlist feeds most of the investments I end up making; that also means that many of those stocks have become “good, old friends” that I’ve used on multiple occasions. Another advantage of keeping a watchlist of stocks on hand, is that simplifying the process of what stocks to dive into a more detailed, thorough analysis on means that it’s easy to track the ebb and flow of business activity in individual companies over time.
It’s a good thing to look at a bunch of fundamental, value, and technical metrics and indicators right now and to be able to use that information to make an educated decision about whether you want to work with a given stock; but when you can overlay an understanding of how those same metrics have shifted over time, you get a more comprehensive view of how a company is evolving over time. I find that it also makes it easier to frame those changes against the backdrop of broader market and economic activity, which only improves the decision-making process even further.
This can be important, because it’s easy to fall into the trap of believing that because you’ve used a stock to nice effect in the past, it might be a good opportunity right now. Checking back every so often through those fundamental, value and technical metrics is a good way to minimize the subjectivity that naturally comes with familiarity and make sure that you’re looking at every stock you consider through the lens of careful, objective, and systematized analysis.
With that, we come to today’s stock highlight. Juniper Networks Inc. (JNPR) is a stock that I’ve followed for a number of years, and used off and on in my own investing systems to good advantage. Tech stocks have led the way in pandemic-driven 2020, with the darlings of the market really being anything tied to remote connectivity and work-from-home solutions. JNPR has a foothold in that same space as a provider of Wide Area Network (WAN) solutions, which is part of the tech ecosphere that virtual private networks (VPNs) generally fall under. Unlike the rest of the Technology sector, however, JNPR has generally underperformed this year. Despite being up about 42% from its March, bear market low, the stock is also about -19% below the 52-week high it reached in July at around $26.
For a value-focused investor like me, a drop in price for a stock that I’ve followed in the past, and like to be able to work with is usually a sign that a new opportunity could be presenting itself. That’s a good indication that it’s time to run through my fundamental and value metrics to see if the company’s fundamentals are still holding up and whether the stock’s current price really does translate to useful value. IS JNPR a stock that you should be looking for a good entry point to make on a good company at a nice price? Let’s find out.
Fundamental and Value Profile
Juniper Networks, Inc. designs, develops and sells products and services for high-performance networks to enable customers to build networks for their businesses. The Company sells its products in over 100 countries in three geographic regions: Americas; Europe, the Middle East and Africa, and Asia Pacific. The Company sells its high-performance network products and service offerings across routing, switching and security. Its products address network requirements for global service providers, cloud providers, national governments, research and public sector organizations, and other enterprises. The Company offers its customers various services, including technical support, professional services, education and training programs. The Company’s Junos Platform enables its customers to expand network software into the application space, and deploy software clients to control delivery. The Junos Platform includes a range of products, such as Junos Operating System (OS) and Junos Space. JNPR has a current market cap of about $7.1 billion.
Earnings and Sales Growth: Over the last twelve months, earnings declined about -16.67%, while revenues were flat but positive by 0.45%. These numbers were much better in the last quarter, as earnings increased 25%, while sales rose 4.78%. The company’s margin profile shows that Net Income as a percentage of Revenues is strengthening, from 8.92% over the last twelve months to 12.77% in the last quarter.
Free Cash Flow: JNPR’s free cash flow declined steadily since the beginning of 2017, when it was almost $1.3 billion, to about $419.3 million in the last quarter of 2019. 2020 has seen that number start to improve, although it did drop back from about $552.3 million in the quarter prior to $487.9 in the most recent quarter. That translates to a Free Cash Flow Yield of about 6.8%.
Debt to Equity: A has a debt/equity ratio of .38. This is a conservative number. JNPR currently has a little over $1.84 billion in cash and liquid assets against $1.7 billion in long-term debt. The company’s balance sheet indicates their operating profits are sufficient to service the debt they have, with very strong liquidity that is more than adequate to make up for any potential operating shortfall.
Dividend: JNPR’s annual divided is $.80 per share, and has increased from $.76 in 2019; that translates to a yield of 3.7% at the stock’s current price.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to worth with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term target at about $21.37 per share. It should be noted this number was $23.50 per share before the company’s latest earnings report. That suggests the stock is a fairly valued at its current price. JNPR’s bargain price sits at around $17.
Technical Profile
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The red diagonal line traces the stock’s upward trend from March to its August peak at around $26.50; it also provides the baseline for the Fibonacci retracement lines shown on the right side of the chart. The stock’s bullish rally from a bear market low around $15 is impressive, marking an improvement of 77% over that period; but after hitting the stock’s pre-pandemic high at around $26.50, the stock dropped back to find a new intermediate low at around $19.50, where the 61.8% retracement line sits in late October. The stock rallied to the 38.2% retracement line at around $22 by mid-November but has faded back again from that point and is currently sitting near support at around $21. A break above $22 should give the stock room to rally to around $24 where previous pivots suggest next resistance should lie. A drop below $21 could have downside to about $19.50 where the 38.2% retracement line should offer next support.
Near-term Keys: The stock’s overall trend right now is clearly bearish, making any kind of short-term bullish trade very aggressive right now; but if the stock does push above $22, that could offer an interesting signal that the trend is about to reverse to the upside. That could provide an opportunity to buy the stock or work with call options, using a range between $24 to $26 as a near-term exit point. A drop below $21 could be a signal to consider a bearish trade, shorting the stock or buying put options, with a near-term target at around $19.50. As for JNPR’s value proposition, the fact is that the stock’s fair value price is dropping at the same time that the stock has been dropping. If the company’s fundamentals can improve – particularly Free Cash Flow, which is acting as a drag on my value analysis right now – in the next couple of quarters, that may change, but otherwise I wouldn’t begin to take JNPR seriously as a value opportunity unless the stock drops to around $17 per share.