The Tech sector has been one of the top-performing areas of the market for the past year, which isn’t too surprising given the way Technology has enabled the corporate world to shift operational models to remote, work-from-home, and flexible working arrangements because of the ongoing pandemic. As analyst, I’ve been interested to see how it has also expanded the list of Tech companies that market media and investors alike have fallen in love with beyond the largest, most recognizable names in the sector.
As a bit of a contrarian, my preference is actually to look for stocks in any industry that aren’t getting as much attention right now. These are often companies that fit into operating segments that have ties to the “hot spots” everybody is paying attention to, but don’t completely fit into those generalized categories. These are many of the stocks that make up the broad watchlist I like to keep an eye on, and that I come back to every so often to check on their latest earnings statements and determine what I think their useful fundamental and value opportunity is. That’s a process that covers a lot of metrics, but for me it’s become an important of refining the system I use to look for useful investing opportunities.
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. JNPR has a foothold in the remote networking and cloud 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 58% from its March, bear market low, the stock is also about -14% below the 52-week high it reached in January at around $28.
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 can be 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 $7.8 billion.
Earnings and Sales Growth: Over the last twelve months, earnings declined about -4.55%, while revenues were increased by 1.2%. These numbers were much better in the last quarter, as earnings increased 40%, while sales rose 7.42%. The company’s margin profile shows that Net Income as a percentage of Revenues weakened in the last quarter, from 5.8% over the last twelve months to 2.52% in the last quarter. This is a concern that could simply be a one-time, temporary issue – but that won’t be known for another quarter or two at least.
Free Cash Flow: JNPR’s free cash flow declined steadily since the beginning of 2017, when it was almost $1.3 billion, to about $538.2 million at the beginning of 2020. Despite pressure driven by the pandemic, JNPR’s Free Cash Flow has remained stable and healthy, rising to $552 million in June of last year and fading back a bit to $511 million at the end of 2020. That translates to a Free Cash Flow Yield of about 6.53%.
Debt to Equity: A has a debt/equity ratio of .38. This is a conservative number. JNPR currently has a little over $1.77 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 3.37% 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 $21.75 per share. It should be noted this number was $23.50 per share in mid-2020, but dropped to about $21.30 in the quarter prior. That current number suggests the stock is a somewhat overvalued, by -8% at its current price. JNPR’s bargain price sits at around $17.50.
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 January peak at around $28; 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, but the stock has faded back from that point, approaching support at around $23 where the 38.2% retracement line rests, with immediate resistance at around $25. A break above $25 has limited immediate upside, to about $26 to next resistance, but if bullish momentum picks up it should be able to test the January high at around $28. A drop below $23 could have downside to about $21.50 at the 50% retracement line for next support.
Near-term Keys: The stock’s current momentum is clearly bearish, making any kind of short-term bullish trade aggressive, with limited upside right now; but if the stock does push above $25, that could offer an interesting signal that the short-term 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 $26 to $28 as a near-term exit point. A drop below $23 could be a signal to consider a bearish trade, shorting the stock or buying put options, with a near-term target at around $21.50. As for JNPR’s value proposition, if the company’s fundamentals can improve in the next couple of quarters, it may become more useful at higher prices, but otherwise I wouldn’t begin to take JNPR seriously as a value opportunity unless the stock drops to around $17.50 per share.