When the pandemic began, corporations around the world quickly boosted their networks so employees could work from home without compromising their cybersecurity. While many workers have returned to the office, the pandemic has changed the world forever, so the demand for networking products and services is unlikely to go away. Therefore, in this piece, I evaluated two communications actions: CSCO and JNPR — to see which is better. Upon further analysis, it appears that CSCO is the better stock.
Cisco systems (NASDAQ:CSCO) and Juniper Networks (New York Stock Exchange: JNPR) are prominent players in the networking/communications industry. However, Cisco provides networking products and services based on Internet protocols, while Juniper services high-performance networks with its products and services.
Cisco Systems (NASDAQ: CSCO)
As a major player with massive scale in the $11.6 billion Network-as-a-Service market, Cisco Systems is poised to be a key beneficiary of expected industry growth to $80.7 billion by 2029. In addition, return activities The company’s shareholder-friendly capital gains, strong profitability and free cash flow, and above-average margins suggest that a bullish view may be appropriate for Cisco.
Cisco is trading at a trailing price/sales (P/S) multiple of 3.8 times and a P/E multiple of 17.8 times, making him seem undervalued in front of his peers. For example, information technology is trading at a P/E of 35.2 times, slightly below the three-year industry average of 37.4 times. The industry’s three-year average P/E multiple is 5.7 times, slightly higher than the current multiple of 4.8 times. Juniper’s industry peer average of 26.3 times also makes Cisco look cheap.
The company regularly enjoys gross margins in excess of 60%, net income margins above 20% and operating margins close to 30%. It also generates a lot of cash: $13.2 billion in free cash flow over the past 12 months.
Cisco also has a strong earnings and revenue track record for the past four quarters. Unfortunately, inflation took a bite out of its earnings in 2022, resulting in lower net income for the July and October quarters. However, Cisco’s scale, profitability and free cash flow generation show that it has the strength to withstand prolonged inflation.
Cisco even offers a attractive dividend yield of 3.13%, a rarity in the technological world. The company has increased its dividend annually for the past 12 years and has returned capital to shareholders through share buybacks for the past three years with a buyback yield of 4.03%.
What is the target price for CSCO shares?
Cisco Systems has a Moderate Buy consensus rating based on five Buys, seven Holds, and one Sell rating assigned in the last three months. At $54.70, the Average Price Target for Cisco Systems Stock implies a potential upside of 12.5%.
Juniper Networks (NYSE: JNPR)
Juniper Networks will benefit from the same rapid growth expected in the network as a service market in the coming years. the company is trading at a P/E of 21.9, placing it slightly below the average for its industry, and its 2.0x P/S ratio makes it look cheap. However, Juniper’s net margins are quite thin and it generates much less cash flow than Cisco, suggesting that a neutral view might be appropriate.
JNPR’s margins are lower than Cisco’s. While Juniper’s gross margin is typically around 60%, its operating margins are typically around 10%, while its net profit margin it ranged from 5% in 2021 to 8% in the past 12 months. Recessions are a normal part of the business cycle, but they are not a good time to be trading on thin margins.
The company generated “only” $589.7 million in free cash flow in 2021 and had negative free cash flow for the 12 months ending in the third quarter, at -$9.9 million. Juniper did not report free cash flow in its earnings report, but cash flow from operations plummeted from $689.7 million in 2021 to $97.6 million in 2022.
Although Juniper offers a solid dividend yield of 2.8%, that dividend could be at risk if the company continues to have cash flow problems. However, in its latest earnings report this week, the company announced a 5% increase in its quarterly dividend, putting those concerns to rest for now.
What is the target price for JNPR shares?
Juniper Networks has a Moderate Buy consensus rating based on ratings of five, three hold and two sell assigned over the last three months. At $36.09, the Juniper Networks median stock price target implies a potential upside of 17.4%.
Conclusion: Bullish on CSCO, Neutral on JNPR
While Cisco Systems and Juniper Networks share similarities, Cisco is much bigger and much more profitable. Both may be solid dividend games, but Juniper may be experiencing some cash flow issues.
Historically, Cisco shares have slumped as they entered a recession, which we haven’t seen yet. With a recession looking likely, investors may want to watch for a pullback and buy on the dip. Cisco is set to report earnings on February 15, so it could be a catalyst either way for the stock.
