Stock Analysis & Ideas

CSCO vs. JNPR: Which Communications Stock is Better?

Story Highlights

A recession looks likely, so companies are going to need to be raking in plenty of cash to avoid problems. While the network-as-a-service industry appears set for massive growth in the coming years, one of these networking plays looks more attractive for multiple reasons.

When the pandemic began, corporations around the world quickly boosted their networks so that 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 demand for networking products and services is unlikely to fade. Therefore, in this piece, I evaluated two communications stocks — CSCO and JNPR — to see which is better. Upon closer analysis, it looks like CSCO is the better stock.

Cisco Systems (NASDAQ:CSCO) and Juniper Networks (NYSE:JNPR) are both prominent players in the networking/communications industry. However, Cisco provides internet protocol-based networking products and services, while Juniper serves high-performance networks with its products and services.

Cisco Systems (NASDAQ:CSCO)

As a primary player with massive scale in the $11.6 billion network-as-a-service market, Cisco Systems is poised to be a key beneficiary of the industry’s expected growth to $80.7 billion by 2029. Additionally, the company’s shareholder-friendly capital return activities, robust profitability and free cash flow, and above-average margins all suggest 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 it look undervalued versus its peers. For example, information technology is trading at a P/E of 35.2 times, slightly lower than the sector’s three-year average of 37.4 times. The sector’s three-year average P/S 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 above 60%, net income margins above 20%, and operating margins near 30%. It also generates plenty of cash — $13.2 billion in free cash flow for the last 12 months.

Cisco also has a solid track record of earnings and revenue beats over the last four quarters. Unfortunately, inflation took a bite out of its earnings in 2022, resulting in declining net income for the July and October quarters. However, Cisco’s scale, profitability, and free cash flow generation show it has the strength to withstand prolonged inflation.

Cisco even offers an attractive dividend yield of 3.13%, a rarity in the tech world. The company has boosted its dividend annually for the last 12 years and returned capital to shareholders via share repurchases over the last three years with a buyback yield of 4.03%.

What is the Price Target for CSCO Stock? 

Cisco Systems has a Moderate Buy consensus rating based on five Buys, seven Holds, and one Sell rating assigned over the last three months. At $54.70, the average price target for Cisco Systems stock implies upside potential of 12.5%.

Juniper Networks (NYSE:JNPR)

Juniper Networks stands to 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, putting it a bit below its industry’s average, and its P/S ratio of 2.0 times makes it look cheap. However, Juniper’s net margins are rather thin, and it generates far less cash flow than Cisco, suggesting a neutral view might be appropriate.

JNPR’s margins are lower than Cisco’s. While Juniper’s gross margin is usually near 60%, its operating margins are typically around 10%, while its net income margin ranged from 5% in 2021 to 8% for the last 12 months. Recessions are a normal part of the economic cycle, but they aren’t a good time to operate 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 that ended in the third quarter, at -$9.9 million. Juniper did not report free cash flow in its earnings release, but cash flow from operations plunged from $689.7 million in 2021 to $97.6 million in 2022.

While Juniper offers a solid dividend yield of 2.8%, that dividend could be at risk if the company continues to have cash flow issues. However, in its latest earnings report this week, the company announced a 5% increase in its quarterly dividend, pausing those concerns for now.

What is the Price Target for JNPR Stock? 

Juniper Networks has a Moderate Buy consensus rating based on fives, three Holds, and two Sell ratings assigned over the last three months. At $36.09, the average price target for Juniper Networks stock implies upside potential of 17.4%.

Conclusion: Bullish on CSCO, Neutral on JNPR

While Cisco Systems and Juniper Networks share similarities, Cisco is much larger and much more profitable. Both may be solid dividend plays, but Juniper may be running into some cash flow problems.

Historically, Cisco shares have plunged going into a recession, which we haven’t seen yet. Since a recession looks likely, investors may want to watch for a pullback and buy the dip. Cisco is set to report earnings next on February 15, so that could be a catalyst in either direction for the shares.


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