What’s The Upside For Juniper Networks Stock?
Up just 30% since March, we believe Juniper Networks stock (NYSE: JNPR) has room for more than 15% upside to levels above its pre-Covid high. The company develops and markets networking products, such as routers, switches, network management software, and security products. The company’s stock trades at $22 currently and is, in fact, down 10% so far this year. It traded at $24 in February 2020 – just before the outbreak of coronavirus – and is currently 7% below that level, as well. Further, with the increased online activity since the pandemic, demand for the company’s products will remain high in the near to medium term, and the stock has the potential to rise around 15% to a new high past its pre-Covid levels. Our conclusion is based on our comparative analysis of JNPR stock performance during the current crisis with that during the 2008 recession in our interactive dashboard.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- Since 3/24/2020: S&P 500 recovers 65% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here is how JNPR stock and the broader market fared during the 2007-08 crisis.
Timeline of 2007-08 Crisis
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- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
JNPR and S&P 500 Performance Over 2007-08 Financial Crisis
We see JNPR stock declined from levels of around $25 in September 2008 (pre-crisis peak) to levels of around $14 in March 2009 (as the markets bottomed out), implying JNPR stock lost over 40% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of just under $27 in early 2010, rising by almost 90% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.
JNPR Fundamentals Over Recent Years
JNPR revenues decreased from $5 billion in 2016 to $4.5 billion in 2019, primarily due to lower revenue from the products segment. Along with lower revenue, earnings also decreased from $1.55 to $1.01 during this period.
Does JNPR Have Enough Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
JNPR’s total debt dropped marginally from $2.1 billion in 2016 to $1.7 billion in 2019, while its total cash decreased from around $2.6 billion to $2 billion over the same period. Further, the company generated around $500 million cash from operations in fiscal 2019. This strong cash position combined with steady cash from operations provides the company a reasonable cushion to deal with the current crisis.
Phases of Covid-19 Crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment
With the recent surge in the number of new Covid-19 cases in the U.S., we see the rise in online activity continuing in the near term, driving up demand for routers and network switches. We believe that Juniper Networks stock has potential upside in the near term, and even as the lockdowns are gradually lifted, a drop in network software and hardware demand does not seem very likely. This could see JNPR stock potentially rise almost 15% from its current level.
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