Juniper: AT&T, Carrier Spend Primed to Rise, Says Jefferies





By Tiernan Ray

Shares of Juniper Networks (JNPR) are up $1.90, or 8%, at $24.47, perhaps helped in part by a note from Jefferies Co.’s George Notter, who writes this morning that his conversations with people in the telecom industry suggest “capex spending will accelerate shortly among carriers such as ATT (T), Verizon Communications (VZ), and Sprint-Nextel (S),” bringing relief to North American equipment vendors, but especially Juniper.

While Verizon “sounds normal” with respect to capes, and Sprint’s spending this year may “pick up meaningfully” as it rides the “learning curve” of its Network Vision project to renovate its network, the key actually appears to be ATT’s passage of its budget.

Based on our conversations, we expect that vendors will shortly see a major acceleration in business with the RBOC. The Q4 baseline, of course, is very low. ATT’s issue is that it’s 2012 capex budget hasn’t been ratified internally and passed down to the different areas of the business. Vendors aren’t allowed to ship against their orders books until the budget is passed (expected to be “any day now”).

Investors probably aren’t fully appreciating the lift equipment vendors may get as a result:

Our sense is that current investor expectations are quite low with respect to the possibility of a significant ramp in North American capital spending anytime soon […] The December quarter was so brutal with the RBOC and there’s still uncertainty around when they pass the capex budget and start spending in Q1. As such, we think there’s a significant gap between perception and reality on capital spending in North America right now. Moreover, we see a strong likelihood of upward Q1/Q2 earnings revisions for vendors with major exposures to ATT, Verizon, and Sprint. Vendors with the largest exposures to these carriers include Alcatel-Lucent, Adtran, Ciena, Juniper, and Tellabs. Our favorite play is Juniper.

Juniper is the only stock among the equipment makers that Notter rates a Buy, assigning the others mentioned an Underperform rating.

Fin.

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Article source: http://blogs.barrons.com/techtraderdaily/2012/02/15/juniper-att-carrier-spend-primed-to-rise-says-jefferies/

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