Morgan Stanley Cuts Juniper (JNPR) to Underweight on Concerns About Shrinking Partnerships, Underinvesting
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(Updated - November 1, 2016 9:07 AM EDT)
Morgan Stanley downgraded Juniper Networks (NYSE: JNPR) from Equalweight to Underweight with a price target of $20.00 (from $24.00). Analyst James E Faucette highlighted shrinking partnerships and risks from underinvesting.
Faucette highlighted five reasons why he thinks shares are overvalued.
- "Lost partnerships leave JNPR to bear expected services margin headwind alone.
- Underinvesting in an overinvested industry elevates market share risk and pricing pressure.
- Transition to new product cycles likely difficult.
- Strategic optionality likely limited.
- Valuation implies low single-digit long-term earnings growth, which could be above the industry growth rate."
Expanding on his first point, the analyst said, "... we think technology providers will need to subsidize initial investments for carriers transitioning to allIP networks. Capital scarcity and negotiating leverage will pressure services margins, favoring vendors that leverage other technology providers' services arms. Cisco's partnership with Ericsson and Nokia's acquisition of Alcatel will force Juniper to bear the margin headwinds alone."
Morgan Stanley's bull case on the stock is $30, its base case is $20, and its bear case is $11.
Shares of Juniper Networks closed at $26.34 yesterday.
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