2023-03-21 13:58:15 ET
Summary
- The tech trade has returned to favor amid a steep drop in global yields.
- With relative price strength, I see Juniper near intrinsic value while its chart is more bullish.
- I outline key price levels to watch.
Amid sharply falling interest rates due to the banking crisis around the world, growth sported its best week against value in more than two decades. Long-duration, high-growth equities performed well while cyclicals and value stocks struggled.
Juniper (JNPR) is a tech company that exhibits relatively strong price action along with free cash flow and profit growth this year. I see the stock near fair value, but the chart is more bullish.
A Rate Shock Stuns the Once-Beloved Value Trade
According to Bank of America Global Research, Juniper is a provider of high-performance network infrastructure to service providers and enterprises. Key products include IP-based routers for service provider core and edge networks, security solutions, and high-end enterprise routing equipment. Juniper's products support converged data, voice, video, and wireless applications across extended networks.
The California-based $10.2 billion market cap Communications Equipment industry company within the Information Technology sector trades at an elevated 22.4 trailing 12-month GAAP price-to-earnings ratio and pays a somewhat high 2.8% dividend yield, according to The Wall Street Journal.
JNPR’s order growth may slow amid the broad GDP rate dip in the coming quarters. The firm’s earnings growth rate still appears robust in my eyes, helping to lift 2023 revenue, but all eyes will soon be on the firm’s FY24. Back in January, the company reported in-line operating earnings while missing on revenues, but then Goldman soon came out positive on the stock following a post-earnings share price drop. A key risk for the firm is how high-end networking spend progresses as corporations tighten their purse strings amid a challenging backdrop.
On valuation , analysts at BofA see earnings continuing to grow EPS at a double-digit percentage clip through next year before slowing in 2025. The Bloomberg consensus forecast is about on par with what BofA projects. Dividends, meanwhile, are seen as holding steady near $0.80 over the coming quarters. The firm has ample free cash flow despite featuring an EV/EBITDA multiple at a slight premium to the broad market.
Overall, I see the stock as near fair value considering its forward operating P/E is at a 9% discount to its 5-year average and the forward PEG is 22% cheaper than the historical norm – that makes sense with higher rates today.
Juniper: Earnings, Valuation, Free Cash Flow Forecasts
Looking ahead, corporate event data from Wall Street Horizon show an unconfirmed Q1 2023 earnings date of Tuesday, May 2 AMC. The calendar is light on volatility catalysts aside from the reporting date.
Corporate Event Risk Calendar
The Technical Take
With a fair valuation, the chart is more compelling to me from a bullish perspective. Notice in the graph below that shares are well above the low made last October. What’s more, JNPR may be breaking out from a bullish consolidation pattern – and that move is helped to be confirmed by the RSI momentum indicator that shows better signs of breaking out. It’s thought that momentum often turns before price, so this could be a bullish harbinger of price action.
I see support in the $29 to $31 range while $34 could be near-term resistance. With a 200-day moving average that may be turning positive, the trend is edging up. Long here with a stop under $29 is a favorable risk/reward play.
JNPR: Holding Support, Bullish Breakout Potential
The Bottom Line
I am a buy on JNPR here based on decent earnings growth and a potentially bullish move on the chart. While the stock is just near fair value, a positive risk/reward long play is apparent.
For further details see:
Juniper: Shares Priced Right As Technicals Turn Bullish