JNPR
*** And here, colleague Porter Stansberry with more madness
in the Nasdaq:
"Out of the eight public corporations in the world whose
market capitalization exceeds $10 billion and whose shares
trade at more than 15 times earnings, Juniper Networks has
the absolute worst gross margins.
"The others are all around 90%. But Juniper sells big,
hard-to-make routers. It is, then, mostly a manufacturing
company. And its gross margins are comparatively normal:
69%.
"Like most revered high-tech stocks, Juniper's business
doesn't appear to benefit shareholders in any way. On a
cumulative basis, the company's efforts since its founding
in 1998 add up to a loss of $13 million dollars. Of course,
this GAAP accounting doesn't include Juniper's biggest
expense: stock options. Juniper's management thoughtfully
passes this cost along to shareholders directly.
"This, of course, is de rigueur for tech companies. But
Juniper's board of directors threw gas onto the fire by
agreeing to re-price all of the outstanding employee stock
options, near the bottom of the market in tech shares.
Today Juniper has 75 million stock options outstanding with an average strike price of $10.71. With the stock doing so well lately, these outstanding, off-balance sheet
obligations provide investors with a fascinating quandary.
"At current share prices, Juniper's employees' options have
an intrinsic value of $1.296 billion dollars. Meanwhile,
Juniper's total shareholder equity only equals $1.5
billion. Thus, at current prices, Juniper's outstanding
option grants to its employees are worth ~ 80% of its
equity.
"The more bullish investors bid up the price of this stock,
the smaller their own claims to the company's equity
becomes. This is the only time I can recall seeing a stock
actually become worth less, the more someone offered to pay
for it. I'm not quite sure what to make of it...
"Juniper's managers, however, are not so curious. They seem
quite able to chart a proper course of action: they're
selling - like there is no tomorrow. So far this year
(2004) Juniper's CEO has dumped 500,000 shares, worth more
than $14 million dollars. The company's CFO isn't far
behind: he's dumped about $6 million worth of stock.
"Like lab monkeys on cocaine, these guys see no reason to
stop hitting the feeder bar. If shareholders are going to
reward them for diluting their stock and dumping new shares
on the market, why stop with giving stock to Juniper's
employees?" |
