Juniper Evades WorldCom
Fallout--So Far
Mark Lewis, 07.09.02, 12:22 PM ET
NEW YORK - When WorldCom imploded late last month, Juniper Networks
was expected to be dragged down by the collateral damage. After all,
WorldCom is one of Juniper's main customers. But Juniper thus far has
evaded the fallout--and in fact, investors have bid the stock higher ahead of
Thursday's earnings report.
Why the optimism? Because investors have scrutinized Juniper's (nasdaq:
JNPR - news - people ) recent public statements and decided that the firm
will not fall short of expectations for its second quarter. Moreover, Juniper just
closed on its purchase of Unisphere Networks, and the upcoming report
should provide some clues as to how that acquisition might eventually boost
Juniper's bottom line. Juniper's strength is core routers for Internet networks,
whereas Unisphere specializes in edge routers.
"Juniper's acquisition of Unisphere could not have come at a more opportune
moment," RBC Capital Markets analyst Sanjiv Wadhwani said in a research
note this week. Wadhwani says the deal will diversify Juniper's customer
base by adding more international clients. He also thinks the Unisphere
acquisition will help Juniper sell more equipment to the Baby Bells.
Still, the WorldCom (nasdaq: WCOME - news - people ) debacle cannot be
ignored. In the current business environment, networking firms can ill afford
to lose a major customer. So if WorldCom further cuts its capital spending or
(in the nightmare scenario) goes out of business altogether, that can't be
good news for Juniper.
In the wake of WorldCom's accounting-scandal bombshell, Juniper's stock
took a dive, closing at $5.13 on June 26 after touching a 52-week low of $4.70
earlier that day. But it quickly rebounded the next day after Juniper released a
statement that WorldCom "is expected to represent less than $7 million of the
company's second-quarter results." That would be down from $12 million in
the previous quarter, according to Pacific Growth Equities analyst Erik
Suppiger.
Juniper said nothing about changing its guidance, so Wall Street still expects
the firm to report a loss of a penny per share, excluding charges, on revenues
that will be little changed from the first quarter. The stock was lower today in
morning trading, but it remained above the $7 level--somewhat higher than
where it was trading when the WorldCom scandal broke. That may be of
small comfort to investors who bought Juniper at $30 a year ago, but it beats
being flattened along with WorldCom.
Wadhwani, the RBC analyst, thinks Thursday's earnings report might provide
a catalyst for this stock if the Unisphere impact looks favorable. "Beyond that,"
Wadhwani adds, "the earliest catalyst could come in the December quarter"
with the possibility of a Baby Bell announcement.
Next winter? That's a long time to wait for a positive catalyst. If Juniper fails to
reassure on Thursday, the stock's recent uptick may melt away in the
summer sun. |
