MKM's Michael Genovese On Juniper Upgrade: 'Cloud And Cable Growing In The Mix'

In a report published Friday, MKM Partners analyst Michael Genovese upgraded shares of

to Neutral from Sell with a "fair value estimate" boosted to $28 from a previous $22 following the company's "strong" second quarter results and guidance. Juniper's second quarter revenue of $1.22 billion was "well ahead" of Genovese's $1.10 billion estimate. The analyst stated that "everyone who is building the Internet and Cloud" (such as Web 2.0s, Cable MSOs, Wholesale and Tier 2 Carriers) require "massive" amounts of network capacity, a "phenomenon" that is benefiting Juniper. Juniper's top 10 customers in the quarter consisted of five Cloud and Cable companies, four Telcos and one enterprise customer. The analyst speculated that Telecom customers has "dropped in the mix" and replaced with Cable and Cloud/Web 2.0 customers. Looking forward to the third quarter, the company's guidance of $1.21 billion to $1.25 billion proved to be higher than the $1.16 billion Genovese was expecting. The analyst noted that the higher than expected guidance reflects the company's belief that strong trends will continue in the Cloud and Cable markets with a "modest" improvement in the Telco market. Genovese boosted his third quarter revenue estimate accordingly to $1.23 billion from $1.16 billion while also hiking his earnings per share estimate to $0.52 from $0.45. He also raised his full year fiscal 2015 revenue estimate to $4.78 billion from $4.57 billion and now expects the company to earn $1.94 per share for the full year versus a previous estimate of $1.69 per share. Bottom line, most of the Internet and Cloud builders that drive capacity are still building the same IP Router-based networks of the last 15 years, and have not yet deployed SDN/NFV solutions. While "things are better" for Juniper than previously thought, the analyst justified a Neutral rating by stating "we think the long-term thesis that SDN/NFV will put a cap on Router growth is early but true."