Great Expectations Greet Juniper - TheStreet

Great Expectations Greet Juniper

Information-technology spending watchers hope the company can shed light on a possible recovery.
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Sagging under the disappointment of Wednesday's reversals, anxious tech investors will shake the tree this afternoon for juicy tidbits from Juniper (JNPR) - Get Report.

As one of the first companies in the communications-equipment sector to report, the Sunnyvale, Calif., router maker typically sets the tone for the closely watched group's earnings season. And this time around, Wall Street is crossing its fingers for signs that the days of slack demand are behind this struggling industry.

But with networking stocks having rallied sharply this year over a largely unchanged fundamental picture, some observers are bracing for a backlash following Juniper's second-quarter report and 2003 guidance. A number of analysts say the stock could easily suffer a

selloff like the one that punished media giant

Yahoo!

(YHOO)

late Wednesday, no matter how strong or weak Juniper's numbers look.

"I think the investing side may be overly optimistic," says Legg Mason analyst Timm Bechter.

Scratching

Highlighting the Street's itchy finger on the buy trigger,

Cisco

(CSCO) - Get Report

shares hit a 52-week high Wednesday after a Dutch news report misinterpreted comments from CEO John Chambers. It seems not everyone is familiar with Chambers' habit of prefacing his oft-told recovery story with a host of involved economic assumptions.

Wednesday's flip-flop aside, however, it's clear that some people believe the economy is ready to heat up, and with it the information-technology spending that drives growth at outfits like Cisco and Juniper. Cisco shares are up 45% this year, and Juniper shares are up 120%. And the rally has only gotten stronger as 2003 has rolled along: Juniper is up 21% just this month as eager traders push to get ahead of the hoped-for rebound in networking-gear sales.

The problem, obviously, is that if Juniper executives don't report signs of improvement and raise projected revenue a bit, impatient investors could bolt. Juniper rose 4 cents Wednesday, to $14.89.

Juniper has done a great job at adding new customers, Legg Mason's Bechter says. "But when do new customers turn into revenues?" Bechter, who has a neutral rating on the stock, asks. "It's important to know the timing and magnitude of these sales."

Disappointing

Analysts are looking for Juniper to post a 2-cent profit on $159 million in sales, according to a Multex tally. That compares with the same earnings on $157 million in revenue in the first quarter, and break-even results on $117 million in revenue a year ago.

J.P. Morgan Chase analyst Ehud Gelblum concurs with Bechter's view. "Expectations are so high right now, there's no way the company can help but disappoint," says Gelblum, who also rates the stock a neutral.

As a potentially faster-growing rival to Cisco, Juniper has gained a whopping valuation, trading at 98 times 2004 earnings forecasts and eight times 2004 sales. Cisco, by comparison, trades at 29 times next year's earnings estimates and 6.7 times sales.

With those kind of values riding on the line, nothing short of great news will serve Juniper stock well.

Says Legg Mason's Bechter: "If they guide for flat third-quarter sales, it will be bad news."