Despite a downgrade, Juniper Networks, Inc. (JNPR: sentiment, chart, options) is rallying with the rest of the market today. Specifically, the Sunnyvale, California-based company was downgraded from "buy" to "sell" by analyst Hamed Khorsand at BWS Financial. Khorsand attributed the downgrade to the fact that AT&T (T: sentiment, chart, options) is cutting its capital expenditure budget for 2009, indicating that other carriers are also likely to cut their 2009 budgets. He said, "It is becoming clear that 2009 would be a difficult year for communications equipment companies, but with JNPR generating more than 70% of their revenues from carriers the risk to earnings intensifies." Elsewhere, Oppenheimer reiterated its rating of "outperform" on the network infrastructure company.
It seems investors have shrugged off Mr. Khorsand's bearish brokerage note and flocked to the shares. In fact, the stock was up nearly 5% at last look. But, is today's rally, just that? Today's rally?
Juniper has had a less-than-stellar year, dropping more than 50% during the past 52 weeks. Furthermore, the stock is potentially seeing resistance from its 50-day moving average. This trendline helped support the equity during September, but could now reverse roles and act pressure.
Analysts are split on the security. According to Zacks, 12 firms have given the shares a "buy" or better rating and 12 firms have rated it with a "hold" recommendation. With nary a "sell" rating to be found, there is plenty of room for downgrades from the brokerage camp. Additionally, Thomson Financial reports the average 12-month price target for the equity is listed as $16.33, a 37% premium to its closing price on Friday.
In parity with analysts, short-term option players are quite optimistic on JNPR. The Schaeffer's put/call open interest ratio (SOIR) for the equity stands at 0.63, indicating that there are more calls than puts among options that expire in less than 3 months. Also, this ratio is lower than 81% of the readings taken during the past 52 weeks. In other words, short-term option speculators have been more bullishly aligned only 19% during the past year.
Plus, call activity has spiked of late, with JNPR racking up a 10-day call/put ratio of 2.48 on the International Securities Exchange (ISE), suggesting that nearly 2.5 calls have been purchased for every put during the past 2 weeks. What's more, the stock's option activity on the ISE has been more skewed toward call options less than 10% of the time in the past year.
In conclusion, the equity has trailed the S&P 500 Index (SPX) by 10% during the past 60 trading days, and considering the broad market's recent performance, this is quite disconcerting for followers. Should the shares continue to drop on the charts, an unwinding of optimism – whether among the brokerages, or option players – could push the stock even lower.
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