Earnings

Critical Comparison: Cisco Systems, Inc. (CSCO) vs. Juniper Networks, Inc. (JNPR)

Cisco Systems, Inc. (NASDAQ:CSCO) shares are up more than 7.65% this year and recently increased 1.55% or $0.63 to settle at $41.23. Juniper Networks, Inc. (NYSE:JNPR), on the other hand, is down -8.11% year to date as of 02/12/2018. It currently trades at $26.19 and has returned 2.55% during the past week.

Cisco Systems, Inc. (NASDAQ:CSCO) and Juniper Networks, Inc. (NYSE:JNPR) are the two most active stocks in the Networking & Communication Devices industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CSCO to grow earnings at a 8.98% annual rate over the next 5 years. Comparatively, JNPR is expected to grow at a 8.95% annual rate. All else equal, CSCO’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 21.42% for Juniper Networks, Inc. (JNPR). CSCO’s ROI is 9.30% while JNPR has a ROI of 9.20%. The interpretation is that CSCO’s business generates a higher return on investment than JNPR’s.

Cash Flow 




Cash is king when it comes to investing. CSCO’s free cash flow (“FCF”) per share for the trailing twelve months was +0.30. Comparatively, JNPR’s free cash flow per share was +0.33. On a percent-of-sales basis, CSCO’s free cash flow was 3.09% while JNPR converted 2.46% of its revenues into cash flow. This means that, for a given level of sales, CSCO is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CSCO has a current ratio of 2.90 compared to 2.70 for JNPR. This means that CSCO can more easily cover its most immediate liabilities over the next twelve months. CSCO’s debt-to-equity ratio is 0.55 versus a D/E of 0.00 for JNPR. CSCO is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CSCO trades at a forward P/E of 15.72, a P/B of 3.12, and a P/S of 4.28, compared to a forward P/E of 12.18, a P/B of 1.90, and a P/S of 1.92 for JNPR. CSCO is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CSCO is currently priced at a -1.13% to its one-year price target of 41.70. Comparatively, JNPR is -0.91% relative to its price target of 26.43. This suggests that CSCO is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for CSCO and 2.90 for JNPR, which implies that analysts are more bullish on the outlook for JNPR.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. CSCO has a beta of 1.16 and JNPR’s beta is 0.85. JNPR’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CSCO has a short ratio of 2.39 compared to a short interest of 2.46 for JNPR. This implies that the market is currently less bearish on the outlook for CSCO.

Summary

Cisco Systems, Inc. (NASDAQ:CSCO) beats Juniper Networks, Inc. (NYSE:JNPR) on a total of 8 of the 14 factors compared between the two stocks. CSCO is growing fastly, is more profitable, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. CSCO is more undervalued relative to its price target. Finally, CSCO has better sentiment signals based on short interest.

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