Wednesday, March 14, 2007

Color on news: Juniper Networks (NASDAQ:JNPR)

Several firms comment on Juniper Networks (NASDAQ:JNPR) after the co filed an 8-K stating that Bob Dykes, EVP and CFO, and Rob Sturgeon, EVP Service Layer Technology (SLT) Group (Security) and GM of the Enterprise both resigned:

- JP Morgan believes the resignations are the result of CEO Scott Kriens' decision to make a significant change in direction for Juniper's senior mgmt team, based on firm's "reading between the lines" of the 8-K filing and conference call.

JPM believes Juniper has always had a weak bench with little outside experience. To wit, management from Netscreen, Peribit, and Kagoor left shortly after the acqus were complete, and when Jim Dolce, former CEO of Unisphere Networks left in Jan '06, he was replaced internally.

The firm also believes this announcement, together with the completed restatements, signals Juniper can again begin repurchasing stock, providing some support for the stock, since prior to the announcement Juniper was in possession of material non public information. As a reminder, Juniper's Board has authorized a $2B repurchase, which at today's prices equates to 113M shares, or approximately 19% of shares outstanding. They wouldn't be surprised, however, to see Juniper wait until it brings on new management before actually repurchasing stock in volume in order to be able to offer a more attractive options package.

So while the changes may appear negative at first, assuming Juniper can attract the right level of new talent, they believe these resignations could potentially end up being a positive for the company, lending Juniper a fresh start and together with recent hires Stephen Elop and Channels Chief Frank Vitagliano (hired from IBM last year), a fresh senior management team to execute on the margin expansion story that continues to be firm's core thesis on the stock. Reiterates Overweight.

- Merrill Lynch says they are concerned with the lack of management stability at Juniper; yet believe that the changes could be a positive sign. Five of the six most senior executives, outside of the CEO, have resigned since Jan'06: The VP of World Operations, the head of Routing and the head of Application Products resigned last year. Last night, it was the CFO and the head of SLT (enterprise). Despite the risk of being accused of wearing rose-colored glasses, the firm states that these changes are positive moves for the company.

MLCO notes they are discouraged by Management's unwillingness to participate in a CFO
resignation call, and reiterate the financial targets. Yet, despite their concerns, they believe the stock is not expensive, trading at 18.4x 2008 PE. The merits behind the management changes seem rational and should Juniper be able to fix its management issues and execute on its product launches, next year's estimates could prove conservative. Firm sees limited downside to the stock and maintains Buy rating.

- RBC Capital notes there are still moving-parts at Juniper and the CFO and a division- head just resigned. With multiple-compression likely despite a possible share-repurchase program, they are reducing their price-target from $19 to $18 and maintaining neutral-stance. A discount to the historic trading-range of 15-34x means a price-point near $15 may make the shares more-compelling. Juniper is now the third company in firm's universe to lose a CFO, joining Nortel and NETGEAR.

Notablecalls: The stock was down 20 cents in after hours action. That's probably not enough to generate a meaningful bounce. In fact, considering my ever-cautious stance regarding JNPR, I wouldn't rule out some further weakness as management failed to reiterate Q1 guidance.

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