Cisco Is Top Networking Stock, New Data Shows

• Cisco Systems, Inc. CSCO shares are up 2 percent in the last three months, with a steep decline in August and recovery in October.
• Piper Jaffray’s Troy D. Jensen maintained an Overweight rating on the company, with a price target of $34.
• The Q3 Networking survey spanning US and Europe indicated a sequential improvement, while being the most positive for Cisco, Jensen said.

The Q3 Networking survey, comprising of 33 resellers and distributors across the US and Europe, indicated a modest improvement from the 2Q15 survey, analyst Troy Jensen noted. “Cisco results were the most constructive within our coverage universe.”

Reseller feedback indicated that the Layer 2-3 Networking group was softer than the June quarter survey, with 24 percent above-plan responses and an increase in below-plan responses from 27 percent to 30 percent.

For the Layer 4-7 Networking group, the survey indicated 22 percent above-plan responses, marking an improvement from 15 percent in the June quarter. There were 19 percent below-plan responses, which is 1 percentage point higher than the previous quarter.

Cisco Is The Favorite

Jensen said that Cisco remains “our favorite name within our Networking universe heading into Q3 earnings season.” The survey indicated that the company witnessed sequential strength in almost all product categories, with security remaining the driver.

In the report Piper Jaffray noted, “We believe Cisco is benefiting from a switching upgrade cycle and the company is making good strides with cost controls and capital allocation.”

Jensen views the company’s shares as “relatively inexpensive,” with limited downside risk, in view of the attractive dividend yield and share buyback. “We also believe the CEO’s new initiatives to terminate low margin businesses will help the company see modest margin expansion over time.”

On The Sidelines For These

The survey indicated lackluster results for Juniper Networks, Inc. JNPR [Rated: [Rated: Neutral, PT $30]. Jensen said, however, that there could be a modest improvement over 2Q15 in the networking category.

“We believe JNPR is making good progress with it spending controls, but continue to prefer CSCO shares due to cheaper valuation,” the Piper Jaffray report stated.

The results for F5 Networks, Inc. FFIV [Rated: Neutral, PT $133] were balanced in the layer 4-7 group, although the company is likely to have struggled in the Asian Pacific region due to macro headwinds.

Ruckus Wireless Inc RKUS [Rated: Neutral, PT $13] performed “most favorably within the Wi-Fi group, which was consistent with our preview note, but our downgrade on RKUS is more related to the stock currently trading at the same sales multiple as HP paid to acquire Aruba, so we don't anticipate any multiple expansion for RKUS shares,” Jensen commented.