Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.Â Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a specific look at how Juniper Networks Inc. (JNPR)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance):Â Juniper Networks, Inc. (Juniper Networks) designs, develops, and sells products and services that together provide its customers with network infrastructure. It operates in two segments: Infrastructure and Service Layer Technologies (SLT). The Companyâ€™s Infrastructure segment primarily offers routing and switching products that are used to control and direct network traffic from the core, through the edge, aggregation, and the customer premise equipment level. Infrastructure products include its Internet protocol (IP) routing, carrier Ethernet routing portfolio, and Ethernet switching portfolio. Its SLT segment offers solutions that meet a range of its customers’ priorities, from protecting the users, applications and data on the network itself to providing network services across a distributed infrastructure. Effective September 13, 2013, Juniper Networks, Inc. acquired Contrail Networks Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years -Â FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â FAIL
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$12.63|
|Value Based on 0% Growth||$7.41|
|Market Implied Growth Rate||9.68%|
|Net Current Asset Value (NCAV)||$0.98|
Balance Sheet – 3/31/2014
Earnings Per Share
Earnings Per Share – ModernGraham
Juniper Networks is suitableÂ for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings growth or stability over the last ten years, lack of dividend payments and the high PEmg ratio. The Enterprising Investor is concerned only by the lack of dividend payments. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities such as through a review of ModernGraham’s valuation of Cisco Systems (CSCO). From a valuation side of things, the company appears to beÂ overvalued after growing its EPSmg (normalized earnings) from $0.59 in 2010 to an estimated $0.87 for 2014. This level of demonstrated growth supports the marketâ€™s implied estimate of 9.68% earnings growth and leads the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value belowÂ the price.
Be sure to check out theÂ previousÂ ModernGraham valuations of Juniper Networks Inc. (JNPR)Â for more perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Juniper Networks Inc. (JNPR)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Disclaimer: Â The author did not hold a position in Juniper Networks Inc. (JNPR)Â orÂ in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Â Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.