Investors should look beyond near-term headwinds to see the within Juniper Networks ' enterprise business, according to Goldman Sachs. Analyst Michael Ng initiated coverage of the network hardware stock with a buy rating. Ng set a price target of $39, which implies an upside of 24.5% from where the stock closed Monday. He said the stock will have near-term challenges related to budget scrutiny and tough comparable periods that will be hard to replicate. A key debate is also swirling on whether future growth will come from new subscribers or from the company working through its backlog — which was built up as a result of supply chain and logistics challenges that drove up lead times. The company's 2022 backlog was higher than pre-pandemic levels at more than $2 billion. But the 2023 backlog should ease as a result of the supply chain working itself out and slowed growth in new orders. Despite the potential for lost revenue due to backlog churn and the chill on new orders, Ng said the company will benefit from a focus on its enterprise business. Ng said the cloud-ready data center will benefit from secular trends in 400G adoption, hybrid multi-cloud and software-based network management tools. Juniper's recent efforts to increase its enterprise sales and improve relationships with channel partners should also help the company, he said. "We expect core underlying demand for JNPR products to be supported by secular trends (e.g., 400G, metro, software-based management platforms) and a re-focused enterprise strategy, though we recognize that tough comps & macro-driven budget scrutiny will be headwinds in the near term," he said in a note to clients. While there may be some challenges due to lowered enterprise IT spend and cloud expenditure budgets, the company has focused on building an automated offering to meet an increased business opportunity in metro areas. Juniper is also expected to invest in a type of service router to support the metro routing business. He also said the company has a notable opportunity in the artificial intelligence space. Jumpier acquired Mist AI in 2019. That helps as the company looks to move its enterprise business away from just being an alternative to competitors toward its own unique offering, he said. Juniper has done so by bringing wireless and software management capabilities into its enterprise campus portfolio and investing in its go-to-market organization. Enterprise was the fastest-growing business vertical in 2022, according to Ng, and is expected to hold that title over the long term. Juniper shares rose 1.5% in early premarket trading. The stock has lagged the broader market in 2023, losing nearly 2%, while the S & P 500 is up 5.4%. — CNBC's Michael Bloom contributed to this report.
