Juniper Networks, Inc. JNPR is set to report fourth-quarter fiscal 2017 earnings results on Jan 30. Last quarter, the company reported a negative earnings surprise of 1.79%. However, we note that Juniper has outperformed the Zacks Consensus Estimate for earnings in three of trailing four quarters, with an average beat of 4.51%.

Juniper reported third-quarter 2017 non-GAAP earnings of 55 cents per share, which beat the Zacks Consensus Estimate by a penny. However, earnings decreased 5.2% year over year primarily due to lower revenues, which fell 2.1% to $1.26 billion. The figure also missed the Zacks Consensus Estimate of $1.28 billion.

The disappointing top-line growth can be attributed to weak performance in both Cloud and Telecom/Cable verticals. Cloud revenues declined 4% from the year-ago quarter and more than 9% sequentially to almost $345 million. Management cited spending delay by cloud and hyper-scale customers to be the reason behind the decline. This factor is anticipated to hurt top-line growth in the to-be-reported quarter as well.

The stock has gained just 8.1% year over year, underperforming the industry’s growth of 23.9%.

Expect What?

The Zacks Consensus Estimate for the quarter is pegged at 52 cents, reflecting a year-over-year decrease of 21.2%. Further, Zacks Consensus Estimate for revenues is pegged at $1.23 billion, down roughly 10.9% from the year-ago quarter.

Let’s see how things are shaping up prior to this announcement.                                                                                            

Factors Likely to Impact Q4 Earnings

In the last quarter, Juniper stated that the ongoing transition by cloud customers from 10-gigabit to 40-gigabit and 100-gigabit was the primary cause behind low revenues. Moreover, architectural shift from scale-up architectures to scale-out architectures (lean core architectures, per Juniper) also hurt growth.

Nevertheless, Juniper’s cloud customer base continues to expand. Of the top 10 customers, five were cloud while four were Telecom/Cable. Juniper has witnessed accelerated demand and adoption of its Software Defined Secure networks (SDSN) platforms.

Juniper completed the acquisition of Cyphort, a leader in automated malware analysis and detection. This is expected to drive the top line in the near term.

Security revenues plunged 16.6% but increased 3.8% sequentially to $71.3 million. The growth can primarily be attributed to momentum in the data center, service provider and next-gen firewall sales.

The Zacks Consensus Estimates for Security revenues is currently pegged at $71 million.

Contrail Security continued to grow in the quarter and won several new customers. The company unveiled Contrail Security, which ensures protection for applications that are deployed in volume-loaded heterogeneous cloud-based environments is a key catalyst. Moreover, AppFormix’s customer base continues to expand across SaaS, enterprises and telecom operators.

Nonetheless, Juniper is facing significant pricing pressure amid intensifying competition in the network equipment market from the likes of Arista Networks Inc, Cisco Systems Inc CSCO and others including white-box vendors.

The company’s routing business has been affected by this competition. In the last quarter, Routing category revenues declined 5.5% to $585.8 million. However, PTX product line achieved record revenues in the last reported quarter.

Management noted that per the latest IHS Markit report, Juniper has achieved the #1 position in terms of market share in the North America core Routing market, for the first time. Further, routing grew both on a year-over-year and sequential basis in Asia Pacific.

The Zacks Consensus Estimates for Routing revenues is currently pegged at $571 million.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Juniper carries a Zacks Rank #4 (Sell) and its Earnings ESP is +2.68%.

Stocks With Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

BofI Holding, Inc. BOFI, with an Earnings ESP of +5.79% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ally Financial Inc. ALLY, with an Earnings ESP of +1.27% and a Zacks Rank of 1.

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