Bernstein Downgrades Juniper, Says Buy Only If This Happens

• Juniper Networks, Inc. (NYSE: JNPR) shares are up 24 percent since January 5, 2015.
• Bernstein’s Pierre Ferragu downgraded the rating for the company from Outperform to Market-Perform, while reducing the price target from $35 to $31.
• Although the company's delivered on its plans in 2015, improvements could be less material in 2016, Ferragu stated.

Analyst Pierre Ferragu wrote, “Juniper performed well in 2015, delivering on capital return, cost structure and progressively meeting improving demand.” He added, however, that improvements “should become less material going forward.”

Ferragu expects the company’s operating margins to improve from ~21 percent in 2014 to ~26 percent in 2016. Margin expansion beyond 2016 could be slower. Over the past two years, Juniper has reduced share count by 23 percent, and buybacks could normalize to ~45 percent of OCF in 2017, lowering the pace of share count reduction to 1-2 percent per annum.

“For 2016, although we still expect strong quarters to be reported later this month and in Spring, we see the risk-reward of owning Juniper as less attractive,” the Bernstein report noted.

Ferragu believes that Juniper’s stock has the potential to reach $31, with M&A risks largely abated. He added, however, that a weak quarter has the potential to result in a 15-20 percent drop in the share price. The analyst recommended buying Juniper’s shares “only on weaknesses, i.e. only below the $25 mark.”

The EPS estimates for 2015 and 2016 have been reduced from $2.04 to $2.03 and from $2.51 to $2.40, respectively.