Cisco: The Best Positioned Legacy IT Vendor, According To UBS

UBS believes Cisco Systems, Inc. CSCO is the best positioned legacy vendor and noted that the company's negative cloud exposure, though material, is lower than its peers. The firm commended new CEO Chuck Robbins' approach towards M&A and the cultural changes implemented at the company.

The brokerage noted the slow evolution of white box and SDN threats has served to give Cisco time to adapt. The firm also expects Cisco to move into adjacencies due to its strong customer relationships. For garnering further investor support, the firm believes Cisco has to look into stabilizing its core routing and switching revenue.

UBS expects Cisco, which has a 9 percent share in the security market and is the largest vendor, to expand its share. To avert vying with pure-play vendors, Cisco is focusing on architecture and integration, while using its huge visibility to make further inroads into the securities market. UBS quoted an interview by Robbins in Bloomberg on Monday, where he said Cisco would continue to focus on small deals in security, loT, cloud and analytics.

UBS Communications Technology analyst Steven Milunovich believes the break-out in Cisco stock, which is at a nine-year high, could attract momentum buying. The analyst believes stock market strength and the company's dividend yield could facilitate movement of the stock much into the $30s.

UBS has a Buy rating on Cisco and its $32 price target is based on 13 times its 2016 earnings per share estimate of $2.40. Though looking overbought, UBS noted that Cisco stock is looking inexpensive on EV/FCF basis.