Hewlett Packard Enterprise Co. NYSE: HPE will acquire network communications equipment provider Juniper Networks Inc. NASDAQ: JNPR for around $14 billion or $40 per share. It sent shockwaves through the computer and technology sector.
Hewlett Packard hopes to achieve cost and operating efficiencies of $450 million annual run rate (ARR) within 36 months of closing the deal.
Leverage can be reduced to 2x within two years after closing due to strong free cash flow growth and maintenance of capital allocation policies. It caused other networking stocks to bounce in sympathy. Here are two affordable networking companies to watch in sympathy on the Juniper buyout.
Extreme Networks Inc.
Cloud networking and infrastructure solutions provider Extreme Networks Inc. NASDAQ: EXTR connects people, devices and applications. It offers wired and wireless networking solutions like routers, switches, access points and other hardware. Extreme offers threat detection, encryption and network access controls to protect against cyberattacks.
Its software and cloud-based management tools help automate network administration from centralized control with Fabric Connect and its ExtremeCloud IQ platforms. Extreme Networks serves enterprises, healthcare companies, government agencies and educational institutions.
Beginning of the end?
The company started with a strong fiscal Q1 2024 earnings report, generating EPS of 35 cents, beating estimates by three cents. Revenues grew 19% year-over-year (YoY) to $353.1 million versus $347.1 million.
Cloud adoption drove 30% growth of SaaS ARR. Unfortunately, inventory normalization and elongated sales cycles as larger deals get pushed further out caused them to cut guidance. As reported by many semiconductor companies, customers are amid inventory indigestion and need to ween out existing inventories. This was one of the reasons Mobileye Inc. NASDAQ: MBLY cut its Q1 2024 guidance.
Downside guidance
The company issued downside guidance for fiscal Q2 2024 EPS of 26 cents to 31 cents versus 37 cents consensus analyst estimates. Q2 2024 revenues are expected to be between $312 million and $327 million versus $367.89 million estimates.
Fiscal full-year 2024 EPS growth is expected at over 25% YoY or at least $1.36 versus $1.55 consensus analyst estimates. Revenues are expected to grow 5% to 9% or $1.38 billion to $1.43 billion versus $1.5 billion consensus analyst estimates.
CEO insights
Extreme Networks CEO Ed Meyercord commented, "Our funnel of new opportunities continued to grow double-digits and the value of deals over $1 million once again grew from the prior quarter. Our highly differentiated cloud solutions deliver simplicity, flexibility, and actionable insights to customers, making it easier for them to manage and secure their networks. And our subscription bookings and SaaS ARR growth of 30% are a testament to that.”
Meyercord noted that their channel partners digest many backlog releases and focus on network deployment. This has slowed down current ordering and caused an "air pocket of demand and decision-making."
The company expects a high teen operation margin for fiscal 2024, allowing Extreme to grow EPS by north of 25% during the year. The company expects to return to mid-teens revenue growth and mid-20s operating margin in the long term.
Further lowered guidance
On January 8, 2024, Extreme Networks cut its fiscal Q2 2024 revenues to the $294 million to $297 million range, down from the already cut $312 million to $327 million range. Annualized subscription and support revenue will be around $430 million, up 41% year-over-year (YoY).
Large deals were further pushed out in 2024 in the ending weeks of the quarter. CEO Meyercord commented, “Our revised second fiscal quarter outlook reflects industry headwinds of channel digestion and elongated sales cycles. In late Q2, we saw multiple large deals pushing out to future quarters.”
Extreme Networks analyst ratings and price targets are at MarketBeat. You can find the Extreme Networks peers and competitor stocks on the MarketBeat stock screener.
Daily descending triangle
The daily candlestick chart on EXPR illustrates a descending triangle pattern. The upper descending trendline commenced at $20.83 on October 31, 2023. EXPR fell to form the lower flat-bottom trendline at $15.87. All the subsequent breakout attempts through the descending trendline were rejected as the daily market structure high (MSH) sell trigger formed at $17.71.
The January 8, 2024, earning warning caused shares to gap down and temporarily fall under the lower flat-bottom trendline, but shares coiled back above $15.87. The daily relative strength index (RSI) has fallen under the 40-band but stalled as it contemplates bouncing or slipping back down to the 30-band oversold level. Pullback support levels are at $15.87, $15.31, $14.41 and $13.47.
Infinera Co.
Optical communications solutions provider Infinera Co. NASDAQ: INFN specializes in developing high-performance wavelength division multiplexing (WDM)-based transmission equipment and IP transport technologies to telecoms.
Strong Q3 2023 earnings beat
On November 8, 2023, Infinera delayed filing its quarterly report due to material weakness in its internal financial controls over financial reporting, causing the company to delay its 10-Q report. In the meantime, Infinera expects Q3 2023 EPS of 23 cents to nine cents versus consensus analyst estimates for a penny loss.
Revenues should be between $378 million and $392 million, beating consensus analyst estimates of $376.5 million. Preliminary non-GAAP margins should be between 40.3% and 42.2%, from previous guidance of $27.5% to 40.5%.
In line guidance
The company issued in-line Q4 2023 guidance with EPS expected between five cents to 13 cents versus nine cents consensus estimates. The company reaffirmed its guidance on January 11, 2024. She added that it expects revenues to be within or exceed $421 million to $451 million versus $436.96 million.
CFO comments
Infinera CFO Nany Erba commented, "We remain focused on completing the work necessary to get our third quarter Form 10-Q on file as soon as possible. In the fourth quarter, we benefited from strong bookings, free cash flow generation, and preliminary revenue and preliminary net income per diluted share to be within or exceed the outlook ranges we previously provided.”
Infinera analyst ratings and price targets are at MarketBeat. You can find Infinera peers and competitor stocks with the MarketBeat stock screener.
Daily cup and handle
The daily candlestick chart on EXPR illustrates a cup and handle pattern. The cup lip line formed at $4.82 after peaking on September 1, 2023.
INFN shares fell to a low of $2.82 on October 30, 2023, then staged a rally back up to $4.55 and retested the cup lipline multiple times heading into the end of December 2023. The pullback formed to $4.18 before the daily market structure low (MSL) triggered a breakout that rose through the cup lip line to peak at $5.14, forming the handle.
The daily relative strength index (RSI) also bounced but stalled around the 60-band. Pullback support levels are at $4.18, $3.79, $3.31 and $2.82.
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