Q4 tracking nicely for Cisco: analyst

This week RBC Capital Markets Managing Director - Mark Sue, provided his take on Juniper Networks, "A resumption in carrier spend and deeper dive into the mobility market point to a positive long-term outlook for Juniper. And considering our view that the worst is over and visibility towards our outlying earnings estimate is improving, we're increasing our 12-month price target to $25. However, a lot of the good news related to the current quarter may already be factored in the stock. As we enter a seasonally slower quarter, we would rather wait for a meaningful pullback before adding to core positions.

"Carriers are methodical with their spend and if anything wireline capex may be back-end loaded for the year, unlike Juniper's stock performance, which has been front-end loaded. Juniper may be enjoying strong product momentum for its MX Ethernet series and the enterprise-centric EX switches (8216, 8208) in this more stable spending environment. We've noted encouraging signs from data center and traditional wireline customers and we're estimating Verizon's wireline capex to increase by as much as 8% sequentially from depressed levels."

Sue continued, "Some additional return to capex spend normalcy by carriers following the stabilization in the spring may mean Juniper could post results near $775M vs. Street's $767M (guidance: $740M-$780M); RBC is in print at $760M. Cost discipline may mean $0.02 better than our $0.17 on EPS (consensus: $0.18). We're not expecting Sept. guidance to be as wide as last time and our bracket range is $780M-$800M, vs. consensus of $789M. Juniper may point to a 'rolling' recovery."

Sue added, "We believe Juniper is planning a big push into the mobility market and is currently looking to add a Head of Mobility Engineering. Juniper had previously worked with Ericsson and developed a wireless packet node that saw limited commercial success. In conjunction with the wireless backhaul products currently being developed, a new family of wireless packet core products may further expand Juniper's addressable market."

Sue concluded, "By year-end, Juniper may have ~$5/share in cash, up from the current $4.18/share. Subtract this $5/share and strip out CY10 interest income and the stock's multiple reflects a reasonable 18x vs. a quick glance of 22x."

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Sincerely,

Brad Reese
BradReese.Com Cisco Refurbished

Also this week, RBC Capital Markets Managing Director - Mark Sue, gave his take on F5 Networks, "We're maintaining our neutral stance on F5 at current levels, which may still have some takeout premium embedded in the shares. F5's stock is now trading at 21x our CY10 EPS of $1.60. F5 may report solid results for the quarter ending in June and provide guidance for a sequentially up September, which we believe is also anticipated in the stock price. We would rather wait for a meaningful pullback before building a position.

"F5 missed its revenue targets for the last several quarters, so we're of the view that the guidance was conservative going into the June quarter ($148M-$157M; consensus: $153.5M). With software upgrades stimulating new hardware sales, revenue for the quarter may reach the high end of guidance range, vs. our printed estimate of $153M. Gross margins may hold near 78% while F5 may positively surprise on operating margins (27.4% in recent quarter) due to ongoing cost control. F5 is now selectively adding to its headcount, mostly in engineering and a few territory account managers."

Sue continued, "Demand stability may give way to summer seasonality and fiscal 4Q is generally a more back-end loaded quarter for F5. With new products such as the 8900, 6900, 3600 to offset some of the seasonality, we're estimating guidance of $157M-$164M, making the midpoint $160M vs. consensus of $158M. We've noted decent carrier bookings for the high-end Viprion with data center and wireless carriers."

Sue added, "North America (typically 58% in June qtr) is showing decent trends with some return to normalcy following a difficult start to the year. EMEA at ~21% is somewhat mixed from our observations, macro being one thing, yet F5 is executing well in under-penetrated regions such as the UK and Africa. Asia (~20%)remains resilient in China and South Korea although Japan remains mixed (mostly on carrier side)."

Sue concluded, "For investors with a longer-term horizon, our price target increases to $32, which still represents a healthy multiple of 20x our CY10E earnings. Strip out cash of $6/share and unlever interest income and we get a multiple of 18x our CY10 estimate. At current price points, we maintain our Sector Perform rating."

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Sincerely,

Brad Reese
BradReese.Com Cisco Refurbished