Despite economic uncertainty, the tech sector’s long-term growth prospects look bright, driven by strong demand for tech solutions amid the rapid digital transformation of organizations across various industries. This transformation also involves upgrading and modernizing network infrastructure, driving the need for networking equipment.
While investors should hold Nokia Oyj (NOK) and wait for a better entry point in this tech stock, fundamentally sound Juniper Networks, Inc. (JNPR) could be a solid buy now for value.
Higher interest rates, stubborn inflation, and worries about an economic downturn sent tech stocks tumbling in 2022; however, the tech-heavy Nasdaq Composite turned in a record performance this year, gaining more than 32.7% year-to-date after the release of OpenAI’s generative AI chatbot, ChatGPT helped sparked a wave of investor enthusiasm over AI.
While still navigating several macroeconomic uncertainties, the tech industry is well-poised to grow and expand exponentially in the long term. The sector extends its reach into other industries, including healthcare, real estate, retail, automotive, and manufacturing, using digital advancements to support innovation and transformation.
Enterprises increasingly integrate advanced technology into business operations to drive efficiency, spur innovation, and reduce operating costs. Approximately 90% of businesses think technology is critical for achieving organizational goals. More than two-thirds of companies plan to spend more on technology and software this year.
Moreover, over 57% of organizations are early adopters of emerging technologies. The rapid adoption of cutting-edge technologies among enterprises, including AI, blockchain, machine learning (ML), metaverse, Internet of Things (IoT), and extended reality, should boost the demand for tech solutions this year and beyond.
Furthermore, organizations across various sectors undergoing digital transformation are upgrading and modernizing network infrastructure, boosting the demand for networking equipment. The widespread adoption of cloud computing, the expansion of data centers, the proliferation of IoT devices, and the growing need for seamless connectivity should also fuel the demand.
According to a report by Custom Market Insights, the global networking equipment market share & size is expected to reach $27.22 billion by 2023, growing at a 4.5% CAGR. The rapid pace of technological advancements, such as 5G, software-defined networking (SDN), and network function virtualization (NFV), is a major dynamic in the market.
Given the industry’s bright outlook, investing in quality tech stock JNPR for potential gains could be wise. However, investors could add NOK to their watchlist and wait for a better entry in this stock.
Let’s discuss the fundamentals of these stocks in detail.
Stock to Hold:
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions globally. The company operates through four segments: Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies. It serves communications service providers, webscales, digital industries, and the government.
On August 3, NOK became the first telecom company to announce the manufacturing of fiber-optic broadband network electronics products and optical modules in the U.S. for use in the Broadband Equity, Access, and Deployment (BEAD) program. Nokia partnered with Sanmina Corporation to manufacture products at the Sanmina Pleasant Prairie facility in Kenosha County, Wisconsin.
In addition to broadband projects, NOK plans to manufacture optical modules in the U.S. Such developments are expected to drive the company’s growth and profitability.
In the same month, NOK began deploying its Converged Charging (NCC) software for Vodafone in multiple European countries, leveraging a cloud-based agile delivery model that enables rating and charging for 5G services and enhances product and services delivery to customers. This long-lasting relationship between NOK and Vodafone should bode well for the companies.
NOK’s trailing-12-month EBIT margin and net income margin of 10.15% and 16.43% are 126.5% and 716.9% higher than the industry averages of 4.48% and 2.01%, respectively. However, the stock’s trailing-12-month gross profit margin of 40.25% is 16.5% lower than the 48.20% industry average.
In terms of forward non-GAAP P/E, NOK is currently trading at 9.21x, 60.6% lower than the industry average of 23.36x. Likewise, the stock’s forward EV/EBITDA multiple of 4.97 is 67.3% lower than the industry average of 15.19. Also, its forward Price/Sales of 0.81x is 70.8% lower than the industry average of 2.79x.
For the second quarter that ended June 30, 2022, NOK’s net sales declined 2.8% year-over-year to €5.71 billion ($6.26 billion). But net sales from the Nokia Technologies segment came in at €334 million ($366.27 million), an increase of 9.5% year-over-year. Its gross profit was €2.18 billion ($2.39 billion), down 7.7% year-over-year.
In addition, NOK’s operating profit decreased 16% from the year-ago value to €474 million ($519.79 million). Its profit for the period declined 37.2% year-over-year to €289 million ($316.92 million), and its EPS came in at €0.05, down 37.5% year-over-year.
Analysts expect NOK’s revenue and EPS for the third quarter (ending September 2023) to increase 4.4% and decrease 3.3% year-over-year to $6.38 billion and $0.09, respectively. Additionally, the company surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
For the fiscal ending December 2023, the company’s revenue and EPS are expected to decline 2.2% and 11.4% from the prior year to $26.53 billion and $0.42, respectively.
NOK’s shares have declined 6.4% over the past month to close the last trading session at $3.90.
NOK’s mixed fundamentals are reflected in its POWR Ratings. The stock’s overall C rating translates to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NOK has an A grade for Value. It also has a C grade for Growth, Sentiment, and Quality. In the Technology - Communication/Networking industry, it is ranked #19 out of 51 stocks.
Click here for the additional POWR Ratings for Stability and Momentum for NOK.
Stock to Buy:
Juniper Networks, Inc. (JNPR)
JNPR designs, develops, and sells network products and services globally. The company provides routing products, including ACX series universal access routers, MX series Ethernet routers, PTX series packet transport routers, and session smart routers. It offers switching products such as EX series Ethernet switches. The company also provides several security products.
On June 13, JNPR’s AP32 Access Points got selected by the University of Tokyo to provide a seamlessly unified wireless experience across its campuses, enabling flexible management.
“We look forward to how the university will further harness the power of Mist AI in their network infrastructure to unlock limitless possibilities and achieve remarkable advancements that will shape the future of knowledge and innovation in Japan,” commented Tomohiro Furuya, VP & Country Manager, Japan, Juniper Networks.
On May 18, JNPR and ServiceNow, the leading digital workflow company, announced a partnership to deliver end-to-end automation for Managed Service Providers and Enterprises.
With this newly formed partnership leveraging Juniper Mist Cloud and ServiceNow Telecom Service Management and Order Management for Telecom, joint customers can eliminate multi-layer multivendor solutions, driving network deployment and operational efficiencies while lowering costs. This collaboration is expected to benefit the companies significantly.
JNPR’s trailing-12-month gross profit margin and EBIT margin of 56.47% and 11.23% are 17.2% and 150.8% higher than the industry averages of 48.20% and 4.48%, respectively. Also, the stock’s trailing-12-month net income margin of 7.27% is 261.3% higher than the 2.01% industry average.
In terms of forward non-GAAP P/E, JNPR is trading at 12.63x, 45.9% lower than the industry average of 23.36x. Also, its forward EV/EBITDA multiple of 8.49 is 44.1% lower than the industry average of 15.19.
JNPR’s net revenues increased 12.6% year-over-year to $1.43 billion for the second quarter that ended June 30, 2023. Its gross margin grew 17.1% from the year-ago value to $813.10 million. Also, the company’s non-GAAP operating income was $242.10 million, up 36.9% year-over-year.
Furthermore, the company’s non-GAAP net income rose 38.6% year-over-year to $189 million, while its non-GAAP net income per share was $0.58, representing a 38.1% increase from the prior-year quarter.
The consensus revenue estimate of $5.60 billion for the fiscal year (ending December 2023) reflects a 5.6% year-over-year improvement. Likewise, the consensus EPS estimate of $2.22 for the ongoing year indicates a 14% rise year-over-year. Moreover, JNPR has an excellent earnings surprise history, surpassing the consensus EPS estimates in all four trailing quarters.
Over the past year, the stock has gained marginally to close the last trading session at $27.72.
JNPR’s POWR Ratings reflect this solid outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
JNPR has a B grade for Growth, Value, and Quality. Within the Technology -Communication/Networking industry, it is ranked #11 out of 51 stocks.
To see the additional POWR Ratings of JNPR for Momentum, Stability, and Sentiment, click here.
What To Do Next?
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NOK shares rose $0.03 (+0.77%) in premarket trading Wednesday. Year-to-date, NOK has declined -14.78%, versus a 18.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
Are Nokia (NOK) and Juniper Networks (JNPR) Good Tech Stocks to Buy for Value? StockNews.com
