Update July 26th, 2011:
-Since suggesting this JNPR Aug Call Spread (below) almost a month ago the market is essentially flat and so is JNPR. There has been some mixed results in the telco equipment space and frankly I find it curious that JNPR just can’t rally given the positive sentiment towards most tech names.
The company will report Q2 tonight after the close and give guidance. The options market is currently implying about a 6% move vs the average move post of earnings of about 3.7% over the last 4 qtrs.
With the stock down almost 30% from the 52 week highs, and given the commentary from the company back in early June (below), I think a weak Q2 is in the stock. The real test will be Q3 guidance and at this point your guess is as good as mine. Bears point to a handful of headwinds including soft demand in Europe, continued weakness in Japan and PLXS who sees almost 5% of their Revs from JNPR’s recent disappointing outlook.
As far as valuation is concerned, the stock is trading at about 21x the consensus eps estimate with expected eps growth of 14% and rev growth of 18%, which is reasonable to it’s historical multiples. Any change to the company’s long-term 20%+ top-line and 25% operating margin guidance could cause volatility as there is some debate whether this is in the stock.
MY VIEW: With the stock at $31.87 in front of tonight’s print I want to sell the Aug 33/35 Call Spread that I paid .55 for last month at a very small gain at about .58 and look to roll out to the fall. I don’t have strong conviction into the print and while I would prefer to buy a beaten up name like this, I don’t feel the need to keep on what would be a binary event in the short term.
If you want to maintain some long exposure look to Oct expiration which could catch Q3 earnings and possibly catch a turn in their business. I want to roll up and out. If this stock is going up it will likely re-test the $40 level and could take a little time.
New Trade: JNPR (31.87) Buy Oct 35 / 40 Call Spread for .90
-Buy Oct 35 call for 1.25
-Sell Oct 40 call at .35
Break-Even on Oct Expiration:
Worst case below 35 lose all .90 (~2.8% of the underlying)
Btwn 35 and 35.90 lose up to .90,
profit btwn 35.90 and 40, make up to 4.10 and best case stock above 40 and make full 4.10 or over 4x your money.
Original Post June 3oth, 2011:
Juniper (JNPR) Down But Maybe Not Out, Way to Play a Bounce With an Almost 3 to 1 Payout By Aug Expiration
JNPR ($31.40)
-stock is down 30% from the 52 week highs made in March and only 5% off of the recent lows….
-Stock got hit hard in early June after the presentation of CEO Kevin Johnson at Merrill Lynch’s Technology Conference on June 1st where he had the following to say: [private]
I look at our Q2, and Q2 is traditionally backend loaded and I think the linearity of this Q2 would reinforce a backend loaded quarter and we’re staying focused on that. But, I think there’s reason to be somewhat cautious in the near-term but yet maintaining optimism about the long-term growth models that we’ve outlined and the demand for networking long-term.
I think this economic recovery is still unfolding and my view has been consistent that we are going to see twists and turns as this economy recovers. In fact, on the switching marketplace, in Q1 this year, the entire addressable market declined by 12% quarter-over-quarter and it declined 9% year-over-year. And I look back over the last 10 years on Q4 to Q1 transitions of total addressable market of Ethernet switching and there was only one other year that had bigger declines. And so that says there was an element of lower sales of port and some smaller amount of impact to ASP. So I think there’s reason to be somewhat cautious.
This commentary was taken as a soft guide down and the stock sold off about 20% in the following 2 weeks until recently bottoming….If in fact the comments were actually just that, cautious, and the company was able to perform you could see a little bit of a short squeeze with short interest at about 3% of the float and some longs looking to get back in.
-Technically the stock looks like it could get back to the support level of ~$35 that it broke below and near its 200 day moving average of ~$36 on any good news.
[caption id="attachment_3013" align="aligncenter" width="300" caption="6 month JNPR chart Provided by Livevol Pro"]
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-At the money implied vol in August which catches earnings is offered at about 38.50 vs the 30 day realized of 45.4o and 60 day realized of 35.50….vols seem pretty fair.
MY VIEW: If the market is going to rally into the new quarter and into earnings sooner or later some of the laggards like JNPR which is down 15% ytd will likely participate….I remain very skeptical of the market and the fact that the market turned so quickly leads me to not want to chase things too aggressively, would like to wait for a pullback….but that doesn’t stop me from finding opportunities in laggards that may have been unfairly punished….in names like this I want to define my risk….If for example JNPR did pre-announce or miss and guide down then the stock would most certainly go back to 25…..
CATCH UP TRADE:
JNPR ($31.40) BUY the AUG 33 / 35 Call Spread for .55
-Buy Aug 33 Call for 1.05 and
-Sell Aug 35 Call at .50
Break-Even On Aug Expiration:
Upside: stock btwn 33 and 33.55 lose up to .55, stock btwn 33.55 and 35 make up to 1.45, stock up above 35 make full 1.45.
Worst Case: Stock below 33 and you lose full .55 or less than 2% of the underlying