It has been some time since I final visited Juniper Networks (NYSE:JNPR) and the inventory has accomplished reasonably nicely since my bullish stance in August. Over this time, JNPR has given traders an 18% complete return, far surpassing the 7% decline within the S&P 500 (SPY) over the identical timeframe by a 25% margin. On this article, I revisit the inventory, and consider whether or not if it is nonetheless a purchase and spotlight a possible different.

Juniper Networks Is Nice, However This Choose Is Higher

Juniper Networks is without doubt one of the main suppliers of networking and cybersecurity options which were adopted by organizations world wide. The corporate was a pioneer within the improvement of software-defined networking and has continued to innovate on this area. Over the trailing 12 months, JNPR generated $5.2 billion in complete income.

JNPR is about to learn from the rising demand for networking and cybersecurity options. As an increasing number of companies transfer to the cloud and rely on the web to conduct their operations, the necessity for dependable and safe networking and cybersecurity options will solely proceed to develop.

That is mirrored by JNPR’s sturdy income development of 19% YoY and 11% sequentially, to $1.4 billion through the third quarter. Additionally encouraging, JNPR is rising its backside line at a quicker charge, with adjusted internet revenue rising by 26% YoY, pushed partially by sturdy adjusted working margin, which grew by 60 foundation factors YoY to 17.2%.

Wanting ahead, JNPR has a promising outlook in its AI-driven networking phase, with its Mist WIFI and EX switching seeing document gross sales with 50% YoY development. It’s positioned to take market share within the cloud and repair supplier phase, with sturdy demand for its excessive capability product line, as famous by administration over the last convention name:

We’re persevering with to see sturdy demand for our 400-gig merchandise with our cloud and repair supplier prospects and now have almost 400 wins for large space use instances throughout our MX, PTX and ACX merchandise. We additionally noticed one other quarter of sturdy order development for our ACX cloud metro portfolio, and our Paragon software program automation suite. We plan to introduce new {hardware} and software program automation capabilities in future quarters that may additional improve our aggressive place on this enticing portion of the service supplier market.

Nevertheless, demand might sluggish in 2023, as administration famous provide chain points that would result in prolonged lead occasions. Therefore, administration is guiding for simply 7% income development this yr. Dimension issues on this area, and as fellow Searching for Alpha contributor Chetan Woodun famous, Juniper’s competitor, Cisco (CSCO) is best positioned from a provide chain resiliency standpoint:

Nevertheless, with extra economies of scale attributable to its capability to order large volumes of parts, Cisco is seeing much less per-unit prices. This permits the corporate to unfold its comparatively larger revenues on decrease prices leading to higher gross margins.

Cisco’s engineering group has been redesigning about 100 merchandise which are uniquely utilized by Cisco for the final 6 to 9 months as a part of the provision chain threat mitigation, permitting for a wider range of parts. That is as well as, to always evaluating and redesigning its international provide chains so as to add extra resiliency over the last 15-20 years.

In the meantime, I do not discover JNPR to be notably enticing on the present worth of $32 and alter, with a blended PE of 16.7, sitting above its regular PE of 15 over the previous decade. Analysts even have a consensus Maintain score with a median worth goal of $34.61 implying little to no upside a the present worth.

Comparatively talking, I discover Cisco to be extra enticing at current. On the present worth of $48, CSCO is buying and selling at a blended PE of 14, sitting slightly below its regular PE of 14.2. Plus, Cisco carries a stronger AA- rated stability sheet in comparison with Juniper’s BBB score. Cisco at present yields over 3%, and has the identical payout ratio as Juniper at 44%.

Investor Takeaway

JNPR is positioned to learn from the rising demand for networking and cybersecurity options. Though, provide chain points might result in slowed development in 2023, JNPR may nonetheless take market share from its opponents within the cloud and repair supplier area, with AI-driven options and newer high-capacity choices.

Having stated that, it seems that the market is valuing JNPR correctly at this level, resulting in little or no upside potential within the close to time period. As such, I discover business juggernaut Cisco to be extra enticing at current, with its stronger stability sheet, larger dividend yield with identical payout ratio as that of Juniper’s, and decrease valuation. Given what is commonly seen as a “pair-trade” between the 2 networking giants, I charge JNPR as a Maintain and CSCO as a Purchase at current.