The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



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Juniper Networks

(JNPR) - Get Report

is trading below $20 as lower capital spending in Q4 2011 from both service providers as well as enterprise, the two client categories it caters to, seems to be taking a toll. Juniper's competitor



has also slumped in the wake of concerns about the macro environment. However, the networking market leader


(CSCO) - Get Report

is doing slightly better than its competitors.

We have a

Trefis price estimate of $28.13 for Juniper Networks' stock based on our DCF valuation model. Below we take a look at why Juniper looks oversold at current price.

See our full analysis of Juniper Networks.

As the macro environment remains challenging, Juniper's customers are expected to get more cautious in their capital spending. However this will only result in lengthening of project cycles and extending of delivery timelines from customers which means higher revenues as economic conditions stabilize by sometime in 2012 (hopefully).

Also the fact that the broader market continues to be strong driven by two key trends of mobile Internet and cloud computing, we can expect higher demand for Juniper's products and services as the new trends witness wide spread adoption.

In addition, Juniper expects to have an extended products and solutions portfolio in 2012, thanks to its increased investment in R&D for the past 3 years. This will help the company to better cater to the fast changing marketplace and to boost its revenues.

In addition to moderate revenue growth, Juniper product gross margins are down at 67.5%, due to relatively lower volume in the routing business, partially offset by the improved volume of security products. Also services gross margins are lower at 57.4%, down 270 basis points compared to same period last year.

Also Juniper's operating expenses have increased by 14% over the last year as the company has maintained high investments in R&D to better equip itself for the changing market dynamics as well as in SG&A to build go-to-market capabilities to make its new products and solutions a success.

While the company's operating expenses are expected to remain high going forward, we expect they are necessary for Juniper to come up with new and innovative products, win new clients in a fast changing environment and ultimately boost the company's revenues. Also new and innovative products can be expected to positively impact the firm's gross margins by improving the product mix.

Thus a weak near-term scenario may have resulted in a low EPS guidance for Q4 2011 leading to a market correction in Juniper's stock price, but when we factor in the strong long term outlook for the networking market in our DCF model for Juniper, the stock looks over sold.



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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.