Cisco Systems, Inc. (CSCO) in San Jose, Calif., and Juniper Networks, Inc. (JNPR) in  Sunnyvale, Calif., are prominent players in the U.S. communication and networking industry. CSCO offers Internet Protocol (IP) based networking products and services, while JNPR provides products and services for high-performance networks.

Because people may not resume working from company premises anytime soon, thanks to the resurgence of the COVID-19 pandemic with the spread of the Delta variant, the demand for networking solutions should remain high. Furthermore, the adoption of a hybrid working structure by several organizations as a long-term solution, and continued digital transformation, should drive the long-term growth of the networking industry. 

The global Network-as-a-Service market is expected to grow at a 33.1% CAGR to hit $45.03 billion by 2026. Consequently, both CSCO and JNPR should see increasing demand for their products and services.

While JNPR has gained 15.2% over the past six months, CSCO has surged 24.2%. CSCO is a clear winner with 54.2% gains versus JNPR’s 42.7% in terms of the past nine month’s performance. But, which of these stocks is a better pick now? Let’s find out.

Latest Movements

On July 15, 2021, Bharti Airtel, India’s premier communications solutions provider, announced the launch of advanced connectivity solutions for enterprises based on CSCO’s Cisco Software-Defined Wide Area Networking (SD-WAN) technology to accelerate their digital transformation and allow them to deliver applications to users with greater visibility, security, and performance.

CSCO completed the acquisition of Socio Labs, Inc. on July 8. Socio labs is a modern event technology platform that manages the full lifecycle of multi-session, multi-track virtual, in-person, and hybrid conferences. Adding Socio Labs to CSCO’s Webex portfolio enables it to provide event organizers everything they need to host events successfully in a single platform.

On July 14, 2021, CMC Networks, a global service provider that offers market-leading networking solutions, selected JNPR to  provide a managed AI-driven SD-WAN solution in Africa. JNPR hopes to deliver a superior experience to CMC’s customers, allowing them to easily modify their services, add new locations and spin up and down network speeds. Significantly reduced time-to-market should enable CMC to provision services faster. Both companies are looking forward to a long-term partnership.

JNPR and NEC Corporation (NEC), a leading global integrator of IT and network technologies, recently worked with Herotel, South Africa’s largest fixed wireless service provider, to deploy segment routing as part of a significant network upgrade initiative. The segment routing deployment has enabled Herotel to deliver optimal bandwidth utilization, reduced latency, and automated traffic engineering capabilities.

Recent Financial Results

CSCO’s total revenue for its fiscal third quarter, ended May 1, 2021, increased 6.8% year-over-year to $12.80 billion. Its non-GAAP gross profit was $8.45 billion, up 5.7% from the prior-year period. Its non-GAAP income from operations is reported to be $4.30 billion for the quarter, representing a 2.8% improvement year-over-year. While its non-GAAP net income increased 4.2% year-over-year to $3.51 billion, its EPS increased 5.1% year-over-year to $0.83. The company had $7.35 billion in cash and cash equivalents as of May 1, 2021.

For its fiscal second quarter, ended June 30, 2021, JNPR’s total net revenues increased 7.9% year-over-year to $1.17 billion. The company’s gross profit came in at $681.90 million, up 10.1% from the prior-year period. Its non-GAAP operating income has been reported $184.80 million for the quarter, up 19.1% from the year-ago period. JNPR’s non-GAAP net income came in at $141 million, representing a 21.2% year-over-year improvement. Its non-GAAP EPS increased 22.9% year-over-year to $0.43. As of June 30, 2021, the company had $986.70 million in cash and cash equivalents.

Past and Expected Financial Performance

CSCO’s revenue and EBITDA have grown at CAGRs of 0.2% and 1.8%, respectively, over the past three years.

Analysts expect CSCO’s revenue to increase 7.3% year-over-year in the current quarter (ending October 31, 2021), marginally in the current year, and 4.4% next year. Its EPS is expected to increase 7.2% year-over-year in the current quarter, marginally in the current year, and 6.4% next year. Analysts expect the stock’s EPS to grow at a 5.9% rate per annum over the next five years.

In comparison, JNPR’s revenue and EBITDA declined at CAGRs of 1.3% and 9.4%, respectively, over the past three years.

Analysts expect JNPR’s revenue to increase 5.7% year-over-year in the current quarter (ending September 30, 2021), 6% in the current year, and 3.5% next year. Its EPS is expected to increase 6.9% year-over-year in the current quarter, 11% in the current year, and 12.2% next year. The stock’s EPS is expected to grow at 7.8% per annum over the next five years.

Profitability

CSCO’s trailing-12-month revenue is 10.6 times JNPR’s. CSCO is also more profitable, with a 31.2% EBITDA margin versus JNPR’s 14.9%.

Also, CSCO’s ROE, ROA and ROTC values of 26.9%, 9.1%, and 16.1%, respectively, compare favorably with JNPR’s 4.7%, 3.3%, and 4.6%.

Valuation

In terms of non-GAAP forward P/E, CSCO is currently trading at 17.23x, which is 5.3% higher than JNPR’s 16.36x.

In terms of forward EV/Sales, CSCO’s 4.47x is 115.9% higher than JNPR’s 2.07x.

POWR Ratings

While JNPR has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, CSCO has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

CSCO has a B grade for Sentiment, which is consistent with analysts’ expectations that its EPS will grow 3.4% in the next quarter, ending January 31, 2022. However, JNPR’s C grade for Sentiment reflects analysts’ expectation that its EPS will decline 2.3% in the next quarter, ending December 31, 2021.

In terms of Quality, CSCO has been graded an A, which is consistent with its higher-than-industry profitability ratios. CSCO’s 27.7% trailing-12-month EBIT margin is 250% higher than the 7.9% industry average. In comparison, JNPR has a B grade for Quality. The company has a 10.1% trailing-12-month EBIT margin, which is 26.8% higher than the 7.9% industry average.

Of the 56 stocks in the B-rated Technology – Communication/Networking industry, CSCO is ranked #6, while JNPR is ranked #21.

CSCO shares were trading at $55.45 per share on Monday afternoon, up $0.08 (+0.14%). Year-to-date, CSCO has gained 26.69%, versus a 17.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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