Juniper's Cloud 'Stall' Prompts BMO Downgrade

Juniper Networks, Inc. (NYSE: JNPR) reported preliminary second-quarter earnings Thursday and third-quarter guidance that signals a "stall" in the cloud business, according to BMO Capital Markets. 

The Analyst

Analyst Tim Long downgraded Juniper Networks from Outperform to Market Perform with a price target lowered from $30 to $27.

The Thesis

Juniper's preliminary earnings report was "solid" and highlighted by a revenue beat and outperformance in all product categories including Services, which would have grown if not for a negative impact from ASC 606, Long said in the downgrade note. (See the analyst's track record here.) 

Revenue and margin guidance for Q3 was disappointing, and looking beyond the headline numbers shows problems with the cloud business, the analyst said. 

While cloud revenue was higher in the reported quarter, push-outs will cause a shortfall in Q3, Long said. A lack of visibility into the cloud business for the next few quarters makes it unclear when revenue growth will return once the transition from the MX to the PTX router is complete, he said. 

A shift in priority to the cloud prompted a slowdown in the switching segment after two years of double-digit growth, the analyst said. A rebound in the security business in Q2 is appreciated, but the unit only accounts for 7 percent of total revenue, he said. 

Price Action

Juniper shares were trading down 9.75 percent to $25.50 Friday morning. 

Related Links:

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Photo courtesy of Juniper Networks.