Juniper Tests Wall Street's Growth Gab

Investors seem to expect an expanding top line, but are customers actually buying?
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Juniper (JNPR) - Get Report will make for a handy test of Wall Street's optimism Thursday evening, as the tech shop is due to report third-quarter earnings after the market closes.

Top-line expectations have been creeping up in recent days as analysts draw rosy conclusions about the Sunnyvale, Calif., networking gearmaker's performance. Some Juniper watchers say there's even a revenue "whisper number" being bandied about -- an earnings-scorecard throwback to the bubble era that many traders presumably regard as the number to watch.

Juniper's financial report officially kicks off earnings season for the big telecom-equipment suppliers. The Street tends to get a little whipped up about Juniper, proxy that it is to outfits like


(CSCO) - Get Report

and upstart contender to the old iron giants like







But some analysts say the enthusiasm may lead to a repeat of

the market's disappointment the last time we saw the Juniper earnings show. The stock fell 5% in postmarket trading on July 10 after the company reported solid numbers but failed to turn in a dazzling performance or raise its outlook.

"I think the bitter experience last time should have taught everyone" that there's no certainty to predicting Juniper's numbers," says CIBC World Markets' analyst Steve Kamman, who has a buy rating on Juniper and a neutral on Cisco. "People should be careful about the expectations that get created."

On Wednesday, Juniper slipped 9 cents to $17.95.

The Pudding

Central to the Juniper investment thesis is the notion that the company offers advanced Internet gear at a time when the industry is shopping for new equipment after a three-year spending slump. It's proof of the second part of that thesis that the investment community awaits.

Phone companies spent less than they had budgeted in the first half of the year, and despite cuts in their planned capital expenditures, the extra cash lying around in telco country could mean a pickup in gearmakers' sales in the third and especially the fourth quarters. At least that's how the so-called budget-flush story goes.

That said, Juniper itself doesn't seem apt to jump on the second-half rally story. In July, the company forecast sequential sales in the third quarter. And Wall Street analysts call for a near repeat of Juniper's second quarter, amounting to a 3-cent profit on $165 million in revenue, according to a Multex tally.

Notably, a flat quarter would halt Juniper's streak of three sequential revenue improvements, a run that in itself was unusual in the growth-starved telecom business.

While summer sales are typically light, not all analysts are willing to believe Juniper can't best its second-quarter revenue level. Kamman expects $168 million, while others like C.E. Unterberg Towbin's Mark Sue are looking for $170 million. And then there's Lehman Brothers' Tim Luke, who believes the top line could be as high as $175 million -- a 6% increase over the previous quarter.

Curiously, the $175 million figure is about the same as the whisper number. CIBC's Kamman says making or beating that number matters for about half a day, and mostly to the stock traders. He notes that Juniper shares have risen 24% since the last earnings report.

And so, even the bullish Kamman predicts Juniper will stick to plan and stay cautious in discussing its outlook. "They won't be waving a lot of flags," says Kamman.