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Juniper Stock Yields To Softer Q1 Performance, Despite ’16 Optimism

The thrill of Juniper Networks ( JNPR ) management’s optimism, despite their Q2 guidance miss, seemed to wear thin on investors who started Friday with a 2.6% pop but watched their stock deflate all day along with the overall stock market. After Thursday’s close, Juniper, the biggest computer networking rival of No. 1 Cisco Systems ( CSCO ), disclosed refined first-quarter earnings and revenue growth that missed initial guidance. It surprised no one, since Juniper pre-annnounced similar numbers on April 11 while warning of delays from its big telecom service customers and some weakness in enterprise market demand for Juniper products, notably the EX Series ethernet switches and SRX Series next-generation data-center firewall. Indeed, Q1 enterprise sales fell 19% from Q1 2015, and telecom delays led service provider revenue to fall 16%, the company said. Juniper also guided Q2 below analyst Wall Street models. Nonetheless, CEO Rami Rahim was optimistic about the full year in his conference call with analysts after the earnings release, and investors seemed to key off that optimism early in the stock market today . But near the session’s close, Juniper stock was flat, near 23, 27% off a five-year high 32.39 set Nov. 4. Cisco stock was down 1.5% late Friday. “We are encouraged by improved visibility with respect to the timing of these (delayed telecom) deployments as well as some early and important design wins with our new products,” Rahim told the analysts. “We remain constructive on the full year 2016 and intend to continue to make progress toward our long-term financial model.” Having closed on its acquisition of BTI Systems on April 1, which should add about $12.5 million in initial quarterly sales, Juniper guided current Q2 revenue down 2.6% to $1.19 billion, plus or minus $30 million, yielding non-GAAP earnings per share of 44 cents to 50 cents, which at the 47-cent midpoint is down 11% from Q2 2015’s 53 cents. Analysts polled by Thomson Reuters had modeled $1.2 billion and 49 cents. For Q1, Juniper reported revenue up 3% to $1.1 billion and non-GAAP EPS up 16% to 37 cents. But initially Juniper had guided Q1 to $1.17 billion and 44 cents. Nomura analyst Jeffrey Kvaal lowered his price target on Juniper stock to 24 from 26, reiterating a neutral rating. “We found talk of new telco architectures and the need to diversify from telcos concerning,” Kvaal wrote in a Friday research note. “We have argued NFV (network function virtualization) is real, here and hurting routing — here is more evidence. We view telco as (about) 40% of sales. We found comments on linearity, product migrations and switch/router integration perplexing, even conflicting.” But William Blair analyst Jason Ader reiterated an outperform rating on Juniper stock, “based on our 2016 non-GAAP EPS estimate of $2.05,” or four cents more than consensus, he wrote in a Friday research note. “We continue to like the risk/reward equation for the stock in view of the operational improvements, capital allocation focus and likelihood of a second-half rebound in switching and routing,” Ader wrote.

Fortinet Crushes Q1 Model; Faces Palo Alto, Cisco With Platform Bet

Fortinet ( FTNT ) topped Wall Street’s Q1 views late Tuesday and threw down a platform gauntlet with a “Security Fabric” that could challenge Palo Alto Networks ( PANW ) and Cisco Systems ( CSCO ), a Dougherty analyst said Wednesday. In afternoon trading on the stock market today , Fortinet stock was up 7.5%, at a four-month high above 33. Shares of fellow cybersecurity firm Barracuda Networks ( CUDA ), meanwhile, were up 17%, at a three-month high near 18, after that company late Tuesday posted a fiscal Q4 and fiscal 2016 beat. But Summit Research analyst Srini Nandury says Barracuda has “too many moving parts” and won’t survive a mass small- and medium-business exodus to cloud products from the likes of Microsoft ( MSFT ) and Amazon.com ’s ( AMZN ) Amazon Web Services. Fortinet Tops On Service Revenue For Q1 ended March 31, Fortinet reported $284.6 million in sales and 12 cents earnings per share minus items, up a respective 34% and 50%, vs. the year-earlier quarter, and topping the consensus for $273.4 million and 9 cents. Billings flew 30% to $330.5 million, above Fortinet’s earlier guidance for $315 million to $322 million. Dougherty analyst Catharine Trebnick credited Fortinet’s sales beat to $160 million in service sales vs. expectations for $150.3 million. Billings from FortiSandbox, which offers advanced threat protection and virtual software, jumped 270% year over year. Bundling also helped drive outperformance, Trebnick wrote in a research report. Fortinet is pushing its “Security Fabric,” which attempts to holistically combine Fortinet’s products under “a single pane of glass.” “We believe this strategy could help incrementally improve margins and would generate more sticky revenue for the company from their SaaS components,” she wrote. “It remains to be seen whether they can outperform competitors such as Palo Alto Networks and Cisco Systems.” Trebnick boosted her price target on Fortinet stock to 40 from 38 and reiterated a buy rating. For Q2, Fortinet guided to sales of $301 million to $306 million, up 27% at the midpoint, and EPS ex items of 14 cents. Billings guidance for $365 million to $370 million would be up 24% at the midpoint. The consensus of 33 analysts polled by Thomson Reuters called for $300.8 million in sales and 15 cents EPS ex items. Barracuda SMB Customers ‘Hijacked’ Barracuda topped Wall Street’s billings and sales views for the first time in four quarters, William Blair analyst Jonathan Ho noted in a report. He reiterated his market perform rating on Barracuda stock, but questioned whether the company could survive the cloud transition. “The Barracuda story looks to have fundamentally changed, with the core value proposition of delivering IT solutions at low cost and complexity to SMB customers being hijacked by public cloud providers,” he wrote. For fiscal Q4 ended Feb. 29, Barracuda reported $83.7 million in sales and 15 cents EPS minus items, up a respective 16% and 114% vs. the year-earlier period, beating the consensus for $80.9 million and 8 cents. Billings were flat at $95.8 million. The company wrapped fiscal 2016 with $320.2 million in sales, 42 cents EPS minus items and $377.5 million in billings, up 15%, 50% and 4%, respectively. Sales and EPS flew past the consensus model of 16 analysts polled by Thomson Reuters for $317.3 million and 35 cents. But fiscal Q1 is expected to decelerate markedly on a year-over-year basis. For the current quarter, Barracuda guided to $83 million to $85 million in sales, 10-11 cents EPS minus items and $94 million to $96 million in billings, up 8%, 2% and 1%, respectively, at the midpoints.

After 16 Quarters Of Revenue Declines, When Will IBM Bounce Back?

The IBM ( IBM ) revenue numbers stand out like a broken arm. Deep into a major transition that has shed multibillion-dollar businesses, IBM has reported 16 straight quarters of year-over-year revenue declines. And it’s not done yet. Another three quarters of declines are expected by analysts polled by Thomson Reuters. In the past several years, Big Blue has shed computer hardware units, reshuffled its software businesses and realigned its workforce to reduce costs as it focuses on growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas that it calls strategic imperatives. Since 2010, IBM has invested about $30 billion in these areas. They include the creation of a new business unit, Cognitive Business Solutions, with its backbone being IBM’s advanced Watson computer. Watson is being used in health care, the Internet of Things, analytics and other fields. IBM says Watson can address a total market opportunity near $2 trillion. “We continue to make significant progress in our transformation to higher value,” IBM CEO Virginia Rometty said in the company’s first-quarter earnings release last Monday. “We strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud.” The IBM transformation is showing progress. IBM revenue from strategic imperatives rose 26% in 2015 in constant currency to $29 billion, compared with a 12% decline in overall revenue to $81.7 billion. Strategic imperatives now comprise 35% of total revenue, up from 22% two years ago. IBM has targeted strategic imperative revenue to reach $40 billion and at least 40% of revenue by 2018. But when will the revenue slide reverse? UBS analyst Steven Milunovich, in a research report, says that 2017 is likely the turning point. “IBM is trying hard to transform its business and also to change the narrative from legacy loser to cloud and cognitive winner,” Milunovich wrote. He added, “Just because strategic imperatives gains the upper hand does not mean IBM’s top line is off to the races, but it could mean the worst would be over.” As to whether Watson and its Cognitive Business can save IBM, Milunovich says that it’s too soon to know, as IBM does not disclose the Watson-driven revenue just yet. “Old IBM is in secular decline, but we believe cognitive eventually could create a material new revenue stream drawing from outside existing IT budgets. We don’t expect revenue to be material for another three years, but the narrative is important now, and eventually Watson could be a $10 billion business,” he wrote. Milunovich has a neutral rating on IBM and price target of 150. IBM stock was flat, near 148, in afternoon trading in the stock market today . IBM stock hit its all-time high of 215.90 in March 2013. It hit a six-year low in February but is up 27% since then. IBM Turnaround Remains ‘Painful’ Credit Suisse analyst Kulbinder Gracha has a more negative view on IBM and says that revenue won’t stabilize until 2018. “We see a painful multiyear turnaround from here, which drives underperformance,” Garcha wrote in a research note. “We believe that large parts of IBM’s business (hardware, operating systems, services) are being impacted by the cloud.” As to Watson, he said, “While we do believe the opportunity here is significant, it is also very early, with the commercial impact of such initiatives that may take several years, if not decades.” Garcha has an underperform rating on IBM stock and a price target of just 110. Other giants in the information technology field are also going through transitions and struggling to accelerate revenue growth. They include Hewlett Packard Enterprise ( HPE ), Oracle ( ORCL ), EMC ( EMC ) and Cisco Systems ( CSCO ). “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett Packard Enterprise, Cisco, Oracle, EMC and Dell,” wrote RBC Capital Markets analyst Amit Daryanani in a research note. Of these competitors, he says, HPE is closest to IBM’s model, with Cisco another. Dell is acquiring EMC. Daryanani has a sector perform rating on IBM stock and a price target of 155.