Tag Archives: jnpr

Netgear Finds Better Profit Focusing On Home Routers, IoT, Not ISPs

Higher profit on lower revenue? Investors expecting greater efficiency out of home Wi-Fi networker Netgear ( NTGR ) likely won’t be disappointed after the close Wednesday. That’s when Wall Street expects Netgear to report that first-quarter earnings rose 30%, which would be its best showing in 17 quarters, while a decline in low-margin Internet service provider (ISP) gear might have led total sales to a 3.5% decline. All good, says Rosenblatt Securities analyst Kirk Adams, who reiterated a buy rating on Netgear stock, with a 42.50 price target, in a research note issued Monday. Investors obliged by firming up the stock a fraction, near 39.50, in afternoon trading in the stock market today . Netgear stock is forming a cup-with-handle base, with a 41.08 buy point. Shares are  14% off their record high 45.76 set on Dec. 7. Analysts polled by Thomson Reuters expect Q1 EPS minus items of 60 cents, up 30% from the year-earlier quarter, on revenue of $298 million, down 3.5%. CFO Christine Gorjanc, on the Q4 earnings call on Feb. 4, had guided Q1 sales to $290 million to $305 million, reflecting “seasonality for the retail business unit, particularly for home security cameras, and a lower revenue outlook for the service provider business unit.” Adams wrote that “our numbers are slightly lower (than the Street) but we do believe they can outperform our estimates and be in line if not slightly better than the Street.” He cited “excellent fundamentals in their retail business, the disposition of the low-margin piece of the service provider business, and much lower inventories in the commercial business unit, which should lead to positive year-over-year revenues in that unit. “We should see a much-improved non-GAAP operating margin during 2016.” Netgear Attacking More Profitable Markets Adams says that “walking away” from the low-margin service provider sales lets Netgear focus on “attacking markets where their product differentiation can bring higher margins.” ISPs provided about 33% of Netgear revenue last year. The No. 1 provider of networking gear to ISPs is  Cisco Systems ( CSCO ), which is about 118 times larger than Netgear’s $1.2 billion market cap. A distant No.2 is Juniper Networks ( JNPR ) with an $8.9 billion market value. Cisco stock was up a fraction Monday afternoon, while Juniper stock was down a fraction. Netgear’s highest-margin niche comes from consumers, who generated 47% of Netgear revenue from 27,000 merchant locations last year. Adams is modeling 13% retail sales growth this year. Led by its Nighthawk WiFi routers and Arlo home security products, Netgear posted record retail sales in Q4, up 34%. Netgear is an enabler and beneficiary of the rising Internet of Things. Put simply, you can’t connect your doohickey to the Internet without a Wi-Fi router in between, unless you use a hard-wired Ethernet connection, which Netgear also makes. “IoT continues to heat up and Netgear is in the middle of most of these developments,” Adams said. “We expect to see them enter another one of those markets in 2016.” Adams notes that Netgear generated more than $100 million in free cash flow last year “and is not afraid to use it” for stock buybacks. The Netgear board authorized a 3-million-share buyback last summer, 9.3% of outstanding shares, beyond the 19% of outstanding shares authorized in Q4 2013. “They continue to believe it is important to return cash to shareholder in excess of strategic and operating needs,” Adams said.

Juniper’s Q1 Miss Drags Down Networking Stocks; Chips Fall Too

When enterprise clients slow down purchases, and Internet service providers delay capital expenditures, Juniper Networks ( JNPR ) has a problem. The top computer-networking gear maker not named Cisco Systems ( CSCO ) pre-announced just such a first-quarter situation after the market close Monday, sending networking stocks lower Tuesday. Juniper stock was down more than 9% in morning trading in the stock market today , below 23, as at least three investment banks lowered their price target. Cisco stock was down 1%, near 27. The IBD Computer-Networking industry group was down 1.4%. Shares of  Arista Networks ( ANET ) and rival Brocade Communications Systems ( BRCD ) were each down 2%. Chips stocks weren’t faring much better. IBD’s Electronics-Semiconductor Manufacturing industry group was down 1% and had been down more than 4%, while the Electronics-Semiconductor Fabless group also was down 1%. Microsemi ( MSCC ) was down nearly 3%,  MaxLinear ( MXL ) 1%, and Inphi ( IPHI ) was weaker by more than 1% — though all had been down more than 3% earlier. FBN Securities analyst Shebly Seyrafi dropped his price target for Juniper stock to 25 from 27 and maintained a sector perform rating. “The primary reasons for the weakness include weaker-than-anticipated demand from enterprise (customers) and the timing of deployments of certain U.S. and EMEA (Europe, Middle East and Africa) Tier 1 telecoms,” Seyrafi wrote in a research note Tuesday. “It is somewhat disappointing to see the weakness in EMEA telecoms (which was the case in fiscal Q4 as well), especially considering that in Q4, JNPR’s service provider segment grew by a strong 25% year over year and that JNPR had an easy compare in the Q1 service provider segment (where revenue declined 8% year over year the year before).” Seyrafi noted that AT&T ( T ) expects to grow capital expenditures 6% to $22 billion this year, while Verizon ( VZ ) implied a 3% decline in capex to a range of $17.2 billion to $17.8 billion. “So U.S.-based service providers will likely not be driving much growth for communication equipment suppliers this year,” he said. Juniper Notes March Rebound “We do think that Juniper felt what Cisco (outperform-rated) noted in February, namely that some customers paused to digest what was happening following financial market turbulence at the beginning of the year,” Seyrafi wrote. “However, we do note that financial markets rebounded in March, and JNPR CEO Rami Rahim stated that the company remains constructive on fiscal 2016 as the company expects new products to add to growth while the company maintains ongoing focus on cost discipline.” Juniper said that it expects to report earnings per share minus items of 35 cents to 37 cents, down from its prior guidance of 42-46 cents. Wall Street had expected 43-44 cents, up 34% to 38% from Q1 2015. Juniper’s new midpoint, 36 cents, would be up 12%. Juniper expects Q1 revenue of $1.09 billion to $1.10 billion, down from its prior guidance of $1.15 billion to $1.19 billion. Analysts polled by Thomson Reuters had expected $1.16 billion, up 8.4%. Sunnyvale, Calif.-based Juniper is set to release full Q1 results after the close April 28. William Blair analyst Jason Ader maintained his outperform rating on Juniper stock but “modestly lowered” full-year estimates for 2016 and 2017. Analyst Alex Henderson at Needham reiterated his hold rating and said that he’s “firmly on the sidelines,” as he too trimmed estimates. “While we see Juniper as one of the weaker companies in our coverage, there could be read-throughs to other names such as Cisco, F5 Networks ( FFIV ) and Viavi ( VIAV ),” Henderson said in a Tuesday research note. “We think Arista and Gigamon ( GIMO ) are likely to be able to power through the choppy environment. Given the magnitude of the (Juniper) top-line miss, we think estimates for Q2 will have to be ratcheted back as well.” F5 stock was down 2% Tuesday morning, while Gigamon was down 1% and Viavi Solutions off 1.5%.

Cisco Upgraded As JPMorgan Firms Up Q3’s 14th Week Sales Estimate

With a  14th week in its current third fiscal quarter and apparently enough momentum to hit 2016 consensus even if its switching business continues to weaken, Cisco Systems ( CSCO ) earned an upgrade from JPMorgan Wednesday. JPMorgan analyst Rod Hall used a proprietary statistical model suggesting “limited downside” for the world’s most essential computer networking gear maker, assuming 2.5% global GDP growth in 2016. The model predicts calendar 2016 revenue of $49.1 billion, in line with consensus, Hall said in a research note to investors. The prediction helped him upgrade Cisco stock to neutral from underweight, and raise its price target to 27.50 from 17. Already ahead of his target by eight cents by the time the market closed Tuesday, Cisco stock responded early by jumping 1.2% by midday to 27.91 in the stock market today , putting it within 6% of a 29.90 high hit May 18 and 7.8% below an eight-year high set March 2, 2015. Among Cisco’s most aggressive rivals, Juniper Networks ’ ( JNPR ) stock was up 1% to 25.48 by midday Wednesday. That 14th week for the quarter and 53rd week for the year happens every sixth year or so for some companies that normally count 13-week quarters, a source of confusion for some investors that is “now famous,” Hall noted. He said that Cisco “cautiously guided revenue” for the 14th week, and Wall Street analyst consensus acknowledges that midpoint scenario, but JPMorgan’s estimates “adjusts for this.” “We believe this not only sets Cisco up to beat expectations in fiscal (Q3) but to guide well for (Q4),” he said. For Cisco’s switching gear, JPMorgan is modeling “conservative campus and data center port share and ASPs (application service providers), but this is offset by better routing and security growth,” Hall said, assuming that better Chinese and Indian acceleration will offset slower U.S. growth. Analysts polled by Thomson Reuters estimate EPS of 55 cents minus items for the current Q3 ending April 30, up 2% from a year earlier, on slipping revenue to $11.976 billion, down 1.3% from $12.137 billion in the year-earlier quarter. Hall revised his adjusted Q3 EPS estimate up a penny to 58 cents, his full fiscal 2016 EPS estimate up two cents to $2.31 and his full fiscal-year revenue model up by $139 million to $49.284 billion. “We continue to see commoditization as a major challenge for Cisco’s switching business,” Hall said. “However, we believe impacts are likely to remain muted in 2016 with the potential to increase in 2017 as private and public cloud adoption accelerate.” While his upgraded neutral rating on Cisco doesn’t sound like a robust endorsement, Hall sees investors “getting paid to hold.” “Cisco’s current dividend yield of 3.8% places it among the top dividend-yielding large-cap value names in the S&P 500 after a surprise 24% dividend increase on Feb. 10,” he said. “We see this highly dependable cash return as a critical supporting factor for the stock in the midst of current market volatility and believe the company has the firepower to further increase should they wish to do so.” Image provided by Shutterstock .