Why Bridgewater increased its position in Juniper Networks

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Bridgewater Associates and Juniper Networks

Bridgewater Associates’ new positions in 2Q14 include Coca-Cola Co. (or KO) and Bed, Bath & Beyond Inc. (or BBBY). Positions sold include Perrigo Co. Plc. (or PRGO), Priceline Group Inc. (or PCLN), and Monsanto Co. (MON). The fund increased its position in Juniper Networks (JNPR). It decreased its stake in Symantec Corp. (SYMC), Cisco Systems Inc. (CSCO), and Las Vegas Sands Corp. (LVS).

The $13.34 billion portfolio includes exchange-traded funds (or ETFs) that have the largest positions. The rest of the positions are smaller.

Bridgewater Associates increased its position in Juniper Networks from 0.07% in the 1Q portfolio to 0.21% in the fund’s 2Q portfolio.

Juniper Networks sells high-performance network products and service offerings across routing, switching, and security to service provider and enterprise markets. The company does business in three geographic regions:

  1. The Americas
  2. Europe, Middle East, and Africa (or EMEA)
  3. Asia Pacific (or APAC)

Activist push earlier this year

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The company saw an activist push earlier this year from Elliott Management—run by billionaire Paul Singer. It urged for changes including cost realignment, capital return to shareholders, and the optimization of Juniper’s product portfolio. JANA also said it believes Juniper should trim ~$300 million in costs per year. It said that the company’s priority should be a program to return capital and issue dividends.

In 1Q14, Juniper announced an integrated operating plan (or IOP) “to refocus its strategy, optimize its structure, and improve operational efficiencies.” In connection with the IOP, the organization was realigned into a One-Juniper structure. It included consolidating research and development and go-to-market functions to reduce complexity, increase clarity of responsibilities, and improve efficiency. As a result of these changes, the consolidated business is considered to be one reportable segment.

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Under the IOP plan, Juniper expects annualized operating expense savings of at least $160 million by the end of 1Q15. It said it focused its strategy towards the market growth areas centered on cloud building and High-IQ networking. Juniper committed to return a minimum of $3 billion to shareholders over the next three years. It will do this through a combination of share repurchases and dividends.

The company also initiated the 2014 Restructuring Plan in 1Q14. It involved workforce reductions, facility consolidations or closures, asset write-downs, contract terminations, and other charges. In the six months ending June 30, 2014, $193.6 million was recorded.

Juniper’s profits double in 2Q

For the second quarter ending June 30, Juniper reported revenue of $1.23 billion—a 7% increase. It was diversified across all target verticals—particularly with customers who are in a build cycle for High-IQ networks and Cloud ecosystems.

It said “revenue growth was driven by increased sales of our edge routing and switching products, and we continued to see growth in our SRX security products.”

The growth was partially offset by a decline in its core routing and non-Junos based security products. Net income more than doubled to $221.1 million—or $0.46 per diluted share.

Juniper agreed to sell its mobile security product portfolio, Junos Pulse, to private equity firm Siris Capital for ~$250 million. Juniper said selling Pulse is consistent with the company’s overall strategy. It’s outlined in its IOP and “further aligns the company’s security products to where its customers and the market is heading with High-IQ networks and building the next-generation of clouds.”

Initiates dividend and provides softer guidance

During 1Q14, Juniper initiated a $1.2 billion accelerated share repurchase (or ASR) program. Initially, $900 million of the shares were delivered. It also announced the initiation of a quarterly cash dividend of $0.10 per share. It said it intends to re-purchase a minimum of $550 million of common stock, in addition to the ASR, by the end of the year.

It expects revenues in the range of $1,150–$1,200 million. It expects non-generally accepted accounting principles (or GAAP) net income per share between $0.35–$0.40 on a diluted basis for 3Q14. The guidance came below analysts’ estimates. Juniper said it factored in its outlook “market dynamics including M&A activity related to its U.S. based service provider customers that are impacting, both sequencing and timing of projects.” AT&T and Sprint are Juniper’s customers in the U.S.

In the next part of the series, we’ll discuss Bridgewater Associates’ decreased stake in Symantec.

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