Analysts Say Cisco Has Limited Upside Following Earnings Beat

Cisco Systems, Inc. (NASDAQ:CSCO) stock traded higher by more than 4 percent after the company beat consensus revenue and earnings estimates for its fiscal second quarter. Cisco reported $12.45 billion in revenue, up 5 percent from a year ago and above the $12.41 billion analysts had anticipated.

Looking ahead to the third quarter, Cisco guided for revenue growth of between 4 percent and 6 percent and EPS of between 76 cents and 78 cents, in-line with Wall Street expectations.

In an interview with CNBC following the earnings call, CEO Chuck Robbins said he is thrilled with his team's execution and emphasized that Cisco's transition to a subscription-centric software model will pay off for investors in the long-run.

"From a business perspective, what you haven’t seen yet is the opportunity for us you know, in 2021, 2022 when the bulk of this begins to come back up for renewal, we’re going to have an incredible base of software that we’ll get to renew and that’s different than what we’ve done for last 25 years," Robbins said on CNBC.

Several analysts have weighed in on Cisco since the report. Here’s a sample of what they’ve had to say.

Resilient Business

Credit Suisse analyst Sami Badri said commercial verticals were particularly strong, including 18 percent growth in public sector revenue and 11 percent growth in enterprise revenue.

“We identify CSCO as the most dominant player across several networking equipment markets, but remains in transition as they continue to shift their business towards a more software/recurring revenue model,” Badri wrote in a note.

Wells Fargo analyst Aaron Rakers said Cisco is proving its resiliency, and the company’s expanding core revenue is a testament to management’s strategic execution.

“Cisco results/outlook highlight fundamental resiliency amid fluid macro uncertainties and the company’s investment execution in core market expansion - Cisco emphasized that it saw very solid demand consistency throughout F2Q19,” Rakers wrote.

Limited Upside

MKM Partners analyst Michael Genovese said Cisco has very little room for improvement, which will likely limit the stock’s upside.

“We think +8% y/y total Product order growth is likely a peak, and we do not think that +18% Public Sector Product order growth is sustainable,” Genovese wrote.

Morgan Stanley analyst James Faucette said Cisco’s solid performance was in-line with a solid macroenvironment, and therefore the stock deserves to trade at a valuation in-line with peers.

“Results and outlook suggest Cisco should continue to track with GDP, and we think the stock appropriately reflects that,” Faucette wrote.

Ratings And Price Targets

• Credit Suisse has a Neutral rating and $47 target.
• Morgan Stanley has an Equal-Weight rating and $49 target.
• Wells Fargo has an Outperform rating and $57 target.
• MKM has a Neutral rating and $54 target.

Shares traded 2.8 percent higher at $48.85 at time of publication.

Related Links:

Cisco Shares Rise After Q2 Earnings Beat

Cisco's Post-Earnings Gain Mirrors Positive Wall Street Commentary

Photo credit: Raimond Spekking, via Wikimedia