AI is Powering a Recovery for Juniper Networks

Key Points

• Juniper is reaping the benefits of the AI deployment trend as a leader in secure, AI-driven networks.
• Global supply chain shortages are still an ongoing challenge.
• Juniper benefits from three secular tailwinds: digital transformation, cloudification, and AI deployment.
• Juniper orders volumes for Q1 2023 fell (30%) YoY, but customer ordering patterns are normalizing.
• JNPR shares are trading down (8%) year-to-date (YTD) at 12.7X forward earnings and provide a 2.94% annual dividend yield.

The artificial intelligence (AI) deployment trend is bolstering stock prices throughout the market. Many stocks are just rising with the currents, but many companies are seeing a material impact due to the AI deployment trend. Network communications solutions provider Juniper Networks NYSE: JNPR may fall into that category.

It's a leader in secure AI-driven networks. It competes with Cisco Systems Inc. NASDAQ: CSCO, Extreme Networks Inc. NASDAQ: EXTR and Arista Networks Inc. NASDAQ: ANET. The Company benefits from secular tailwinds, including digital transformation, cloudification and AI deployment. Despite order volumes falling (30%) YoY, both top and bottom lines grew in the same period. The macroeconomic environment and supply chain challenges are resulting in longer sales cycles, and this trend is expected to continue through 2023.

AI and Related Products

Juniper's Mist AI platform has been seeing growing demand and accolades as it helps to minimize IT costs. With AI-driven support and end-to-end service levels, it automates wired and wireless networks instituting proactive self-routing automation to ensure secure user experiences. Its 128 Technology acquisition will accelerate the evolution of AI-driven application end-user software-defined wide area networks (SD Wan) experience from client to cloud. Juniper's Marvis is an AI-powered virtual assistant used by IT teams. Its Apstra is an AI-powered SDN improving the reality and security of networks.

Growth Acceleration

Juniper reported its Q1 2023 results for the quarter ending March 2023 on April 25, 2023. The Company reported earnings-per-share (EPS) of $0.48 versus consensus analyst estimates for $0.43, a $0.05 beat. Revenues grew 17.4% year-over-year (YoY) to $1.37 billion, beating analyst estimates of $1.34 billion by $300 million. Non-GAAP operating margin rose to 14.8%, up from 11.8% in the year-ago period. GAAP operating margin increased 8.4% from 5% in the year-ago period. The Company ended the quarter with 1.19 billion in cash and cash equivalents. Cap ex was $42.1 million.

Juniper CEO Rami Rahim commented, "Despite market uncertainties, I remain confident in our strategy and our ability to deliver another year of healthy revenue growth based on the momentum we are seeing with our customers, the continued strength of our backlog, and the improvements we are seeing with respect to supply."

Supply Chain Challenges Through 2023

Supply chain shortages have been improving, but they are still challenging. The Company has taken steps to increase its inventory levels and purchase commitments but expects lead times to stay extended in addition to higher freight and logistics expenses. The elevated costs and extended lead times are expected to "persist" through 2023. Days sales outstanding in accounts receivables grew to 70 days in Q1 2023, up from 65 days in the year-ago period but down from 76 in the prior Q4 2022 quarter.

In-Lines Guidance for Q2 2023

Juniper issued in-line guidance for Q2 2023 for EPS in the range of $0.49 to $0.59 versus $0.53 consensus analyst estimates. The Company expects revenues between $1.36 to $1.46 billion versus $1.4 billion analyst estimates. Non-GAAP margin is expected to be around 58%, and operating expenses around $590 million. Non-GAAP operating margins will be approximately 16.2%. A cash dividend of $0.22 per share will be paid on June 22, 2023, to shareholders on record as of the close of business on June 1, 2023.

Juniper analyst ratings and price targets are at MarketBeat.

 

The definitive beginner's guide to reading stock charts can be found free on Marketbeat.

 Learn how to use the RSI indicator on MarketBeat.

Weekly Cup and Handle

The weekly candlestick chart on JNPR shows the weekly cup and handle attempt having trouble as the handle loses steam on a (7.8%) downdraft. The cup lip line originated in April 2022 at $33.92 as shares fell to a low of $24.66 in October 2022.

JNPR eventually rallied to retest the weekly cup lip line in April 2023 before sinking to form the handle low at $28.16. JNPR staged a bounce on the weekly market structure low (MSL) breakout through the $29.36 trigger on its way towards a third test of the cup lip line, but its legs were chopped on a solid wave of selling that took shares back down to test the weekly 50-period moving average (MA) support at $29.91.

The weekly RSI fell under the 50-band, indicating a sudden momentum reversal. Pullback support levels are $29.36, $28.16, $27.53 and $26.10.