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Juniper Outlook Brightens

Scott Moritz

The Sunnyvale, Calif., Internet gearmaker stumbled through a rough stretch after security-system acquisition Netscreen failed to open new revenue doors. Meanwhile, rivals started stealing market share in its edge-router business, causing sales to take a dip. Then, more recently, the excellent timing of a few stock-option grants caught regulators attention.

Juniper shares hit a three-year low in August as investors gave up on the pesky Cisco (CSCO Quote) challenger. But since that $12.09 bottom this summer, the stock has bounced back with a 30% gain.

Though there are still serious concerns about what the stock-option backdating investigation will reveal, some analysts have gotten cautiously optimistic about Juniper's business prospects.

A big part of Juniper's appeal, despite the company's foibles, is the continuing growth of data traffic. Faster home connections, combined with Internet protocol's spread throughout business networks, are requiring more capacious traffic-management devices. This is just the sort of Net infrastructure gear that Juniper has built its fortunes on.

"Router market growth may be accelerating, and Juniper has worked to rectify numerous execution issues," RBC analyst Mark Sue said in a research note last week.

New contracts with outfits like China Telecom (CHA Quote) show the company is back in the game, says Sue.

Earlier this year, Juniper lost some of its router prowess as giants like Cisco, Alcatel (ALA Quote) and even a reinvigorated Redback (RBAK Quote) made inroads to the thriving edge-router segment of the market.

But apparently Juniper has convinced Verizon (VZ Quote) that its E320 edge router is a winner, and that puts the supplier in line for some of the billions upon billions the big telco is spending on its fiber optic expansion project.

"We believe the E320 platform was recently selected as the exclusive edge-routing platform for Verizon's GPON architecture, based on our recent channel checks, which should spur the reacceleration of revenue growth," JPMorgan analyst Ehud Gelblum wrote in a note Monday.

Gelblum summarized the bulls' thinking, or at least the hopes, in his investment thesis Monday.

"We believe the worst is behind it," Gelblum writes about Juniper. "And the stock should continue moving in the right direction once revenue growth begins."