Wednesday, September 20, 2006

Calls of Note Part 1

- Merrill Lynch comments on Juniper (NASDAQ:JNPR) saying the co operates in generally robust markets, where market share dynamics are the key driver for the stock. Firm's note examines trends in Juniper's key segments and highlights EPS and share price sensitivity to market share assumptions. The analysis supports their buy thesis, suggesting 20%-80% upside potential from current Juniper share price levels using a 25x PE, and a 5% downside to 42% upside using a 20x PE, under various scenarios. Firm believes this is a favorable risk/reward ratio and reiterates Buy rating and $21.40 price objective.

They estimate Juniper's total addressable market of routing and security products can grow 13% annually in 2007 and 2008. While Merrill Lynch's telecom services team projects global carrier capex to decline 5% YoY in 2007, they believe spending will shift from legacy areas like voice to new areas like broadband/video upgrades and network security, which should benefit Juniper.

Management has been faulted for being slow and inflexible to adapt the edge routing portfolio, and for giving up crucial market share to Alcatel and Redback. Indeed, the firm shares in this criticism, yet also believes that Juniper has gone a long way to fix the problems. Juniper recently upgraded its edge router and they also expect to see an edge switch in the future, both of which could narrow the competitive gaps with Alcatel and Redback. It remains to be seen if management's acquisition strategy over the past two years eventually yields any tangible synergies with the traditional routing portfolio.

Notablecalls: Would not be surprised to see buy interest in JNPR over the next couple of days.

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