JNPR, ALLT, PKT, BSFT: Pac Crest Cuts Estimates on Europe

Pacific Crest networking and telecom analyst Brent Bracelin today cut his estimates for equipment vendors Juniper Networks (JNPR), Allot Communications (ALLT), Procera Networks (PKT), and Broadsoft (BSFT), after concluding there’s both promise and peril in the outlook for telecom spending this year.

Spending should see a big boost, but it largely depends on Europe, writes Bracelin:

On one hand, we are encouraged by commentary coming out of Mobile World Congress (MWC) and the Optical Fiber Communications Conference (OFC) that suggests 2013 could finally bring an accelerated pace of spending on metro and core network upgrades. However, there still appears to be a gap between talk and placing orders [...] Our analysis of the top 15 operators (outside of China) suggests that spending on telecom infrastructure could increase by 10% in 2013 to $123.5 billion, which would be the highest increase since the 11% rise in 2007. However, more than half of the absolute spending increase is expected to come from Europe� Deutsche Telekom, Telecom Italia and Vodafone, specifically�which adds a high degree of risk to a telecom infrastructure recovery, particularly given that most of the spending increases are from European operators and hinge on stable to improving Eurozone conditions, which are at risk of contracting.

Bracelin reiterates a Sector Perform rating on shares of Juniper, cutting his fiscal 2013 estimate to $4.51 billion and $1.09 from a prior $4.6 billion and $1.10. For Allot, which he rates Outperform, he cut estimate to $121 million and 55 cents per share from a prior $125 million and 63 cents. For Broadsoft, which he rates Outperform, he cut his estimate to $182 million and $1.20 per share from a prior $187 million and $1.30 per share. And for Procera, which he also rates Outperform, he cut his estimate to $71.5 million and 12 cents per share from a former $75.5 million and 20 cents per share.

Bracelin thinks Cisco Systems (CSCO), whose shares he rates Outperform, is the best defense against the risk of telecom spend coming up short: “With about 30% of revenue from service providers, Cisco is more insulated than its telecom equipment peers. ”

It also has the benefit of a strong balance sheet (27% of market cap in net cash). We see limited downside risk below $20, with $2.23 in EPS in C2014 and a dividend yield of 3.4%.”