|Buy Cisco Stock to Play New Product Cycles, Analyst Says -- Barrons.com|
12:04 PM ET 12/19/19
|4:15 PM ET 12/19/19|
|Real time quote.|
By Eric J. Savitz
Cisco Systems stock is trading higher Thursday after Barclays upped its rating on the network equipment provider.
Analyst Tim Long now rates the stock Overweight from Equal Weight previously, with a new target price of $53, up from $47.
Cisco shares (ticker: CSCO) have sharply underperformed the market in 2019, with a year-to-date gain of just 13%, versus 33% for the Nasdaq Composite. Since peaking above $58 a share in July, Cisco shares have slumped 18%. The decline reflects recent investor concerns with the outlook for both enterprise and carrier spending amid a tougher macro environment. In reporting earnings last month, Cisco projected January quarter revenue would be down 3% to 5% on a year-over-year basis, a range of $11.8 billion to $12.1 billion, or as much as $1 billion below the previous Street consensus at $12.8 billion.
In an interview with Barron's following earnings last month, Cisco Chief Financial Officer Kelly Kramer said that order weakness the company saw in the previous quarter "got a little worse for us" in the October quarter. She said there was continued softness both from service providers and in emerging markets, but that the issue has spread and become more broad-based.
In a research note this morning, Long says his more bullish stance reflects both a valuation call and the promise of a recent round of product announcements.
"Cisco has a diversified revenue stream, but a few key product areas should improve for Cisco and the industry over the next year," he writes.
Long calls out Cisco's new 8000 router series which is based on the company's new Cisco Silicon One chip. "Cisco is four years removed from its last routing cycle, so we expect upgrades and share gains, particularly as 5G traffic grows," he writes.
Long also sees further gains for the campus switching market, where he estimates 40% share for Cisco's 9000 series switches. And Long says a technology shift to Wi-Fi 6 should help both the wireless local area networking, or WLAN, and campus switching segments.
As for the stock, Long says Cisco shares have historically outperformed following guidance revisions like the one issued last quarter. "We expect this time to be no different, particularly as product cycles emerge," he writes. Long today lifted his earnings-per-share estimates to $3.25 from $3.20 for the July 2020 fiscal year, and to $3.50 from $3.38 for fiscal year 2021. And he sees potential for multiple expansion, with new product cycles improving sentiment on the shares.
Cisco stock on Thursday was up recently 2%, to $47.55.