Tag Archives: jnpr

Cisco Profit Margin Outlook Bullish As Business Model Shifts

RBC Capital says it’s bullish on the sustainability of Cisco Systems ’ ( CSCO ) gross profit margins in the wake of the networking leader’s fiscal Q3 earnings beat. “Cisco continues to shift toward a recurring revenue business model with lower exposure to legacy routing and switching,” Mitch Steves, an RBC Capital analyst, said in a research report Monday. Steves said RBC is “bullish on gross margins, given about $9 billion to $10 billion in software-related revenue and improved mix post the set-top box divestiture.” Cisco sold its set-top business to French firm Technicolor last July. Steves has an outperform rating on Cisco stock, with a price target of 33. Cisco stock was up 1% in early trading in the stock market today , near 28, after rising Thursday and Friday. Late Wednesday, Cisco said revenue for its fiscal Q3 ended April 30 rose 3% from the year-earlier period, to $12 billion, just beating the consensus estimate of $11.97 billion, as polled by Thomson Reuters. Earnings per share minus items rose 5.6% to 57 cents, edging the consensus of 55 cents. Cisco has a so-so IBD Composite Rating of 64 out of a possible 99. “Cisco is continuing to change its business model, offering switching/routing at lower costs in exchange for higher services/software revenue,” said Steves. “At this point we do not see a material change in margins, given the business model changes.” Cisco rival Juniper Networks ( JNPR ), meanwhile, was downgraded to market perform from outperform by William Blair, where analyst Dmitry Netis has just picked up coverage. In a research note Monday, Netis said the transition from routers and switches to newer technologies, software-defined networking and network function virtualization remains an overhang for Juniper. He also wrote that “the spending environment has not been particularly robust this year,” pointing to Cisco’s earnings last week. Juniper stock was down a fraction, near 22.50, early Monday. Its shares have fallen 18% so far this year, while Cisco stock is up a fraction over the same period.

Cisco Pressured By Enterprise Trends Ahead Of Fiscal Q3 Earnings

Negative trends in the enterprise market — large companies and government agencies — are lowering expectations ahead of Cisco Systems ‘ ( CSCO ) fiscal Q3 earnings, due out Wednesday after the market close. Many large companies are outsourcing business computing workloads to cloud computing service providers such as Amazon Web Services, part of Amazon.com ( AMZN ), lessening their need for the routers, switches and other networking gear sold by Cisco and others. Analysts polled by Thomson Reuters estimate Cisco earnings minus items will rise 2% to 55 cents, though they see revenue falling 1% to $11.97 billion. “We see three major issues into this earnings release, including weak IT data points, all signaling industrywide IT spending weakness, less visibility around service provider spending, and global macro exposure,” Kulbinder Garcha, a Credit Suisse analyst, said in a research report. “Year to date, we have seen weak IT spending indications from large bellwethers including IBM ( IBM ), EMC ( EMC ), Juniper ( JNPR ), Brocade ( BRCD ) and SAP ( SAP ),” added Garcha, who has an underperform rating on the stock. JPMorgan analyst Rod Hall, in a research report, cited negative enterprise market commentary from Intel ( INTC ), Oracle ( ORCL ) and Hewlett Packard Enterprise ( HPE ). Reports of slower tech spending was a factor in the stock market’s plunge early in the year. With many tech companies struggling to meet expectations recently, an in-line quarter for Cisco might be good enough to move shares higher, said Citigroup analyst Jim Suva. RW Baird’s Jayson Noland was another analyst citing slower spending of late. “Our partner survey results indicate a softer-than-expected April quarter, with improved prospects for growth for the remainder of calendar 2016,” Noland wrote in a research note. Cisco stock, up 1% near 27 in early trading in the stock market today , is about even in 2016. Cisco stock is up 20% since touching a two-year low in early February.

Juniper Stock Yields To Softer Q1 Performance, Despite ’16 Optimism

The thrill of Juniper Networks ( JNPR ) management’s optimism, despite their Q2 guidance miss, seemed to wear thin on investors who started Friday with a 2.6% pop but watched their stock deflate all day along with the overall stock market. After Thursday’s close, Juniper, the biggest computer networking rival of No. 1  Cisco Systems ( CSCO ), disclosed refined first-quarter earnings and revenue growth that missed initial guidance. It surprised no one, since Juniper pre-annnounced similar numbers on April 11 while warning of delays from its big telecom service customers and some weakness in enterprise market demand for Juniper products, notably the EX Series ethernet switches and SRX Series next-generation data-center firewall. Indeed, Q1 enterprise sales fell 19% from Q1 2015, and telecom delays led service provider revenue to fall 16%, the company said. Juniper also guided Q2 below analyst Wall Street models. Nonetheless, CEO Rami Rahim was optimistic about the full year in his conference call with analysts after the earnings release, and investors seemed to key off that optimism early in the stock market today . But near the session’s close, Juniper stock was flat, near 23, 27% off a five-year high 32.39 set Nov. 4. Cisco stock was down 1.5% late Friday. “We are encouraged by improved visibility with respect to the timing of these (delayed telecom) deployments as well as some early and important design wins with our new products,” Rahim told the analysts. “We remain constructive on the full year 2016 and intend to continue to make progress toward our long-term financial model.” Having closed on its acquisition of BTI Systems on April 1, which should add about $12.5 million in initial quarterly sales, Juniper guided current Q2 revenue down 2.6% to $1.19 billion, plus or minus $30 million, yielding non-GAAP earnings per share of 44 cents to 50 cents, which at the 47-cent midpoint is down 11% from Q2 2015’s 53 cents. Analysts polled by Thomson Reuters had modeled $1.2 billion and 49 cents. For Q1, Juniper reported revenue up 3% to $1.1 billion and non-GAAP EPS up 16% to 37 cents.  But initially Juniper had guided Q1 to $1.17 billion and 44 cents. Nomura analyst Jeffrey Kvaal lowered his price target on Juniper stock to 24 from 26, reiterating a neutral rating. “We found talk of new telco architectures and the need to diversify from telcos concerning,” Kvaal wrote in a Friday research note. “We have argued NFV (network function virtualization) is real, here and hurting routing — here is more evidence. We view telco as (about) 40% of sales. We found comments on linearity, product migrations and switch/router integration perplexing, even conflicting.” But William Blair analyst Jason Ader reiterated an outperform rating on Juniper stock, “based on our 2016 non-GAAP EPS estimate of $2.05,” or four cents more than consensus, he wrote in a Friday research note. “We continue to like the risk/reward equation for the stock in view of the operational improvements, capital allocation focus and likelihood of a second-half rebound in switching and routing,” Ader wrote.