3 Cisco Analysts Continue To See Upside Potential After Narrow Q3 Beat

Tech giant Cisco Systems, Inc. CSCO reported third-quarter results Wednesday that came in better than expected and prompted at least three Street analysts to reaffirm their bullish stances. 

The Analysts

Bank of America Merrill Lynch's Tal Liani maintained a Buy rating on Cisco with a price target lifted from $56 to $62.

KeyBanc Capital Markets' Alex Kurtz maintained at Overweight, price target lifted from $58 to $60.

Raymond James' Simon Leopold maintained at Outperform, unchanged $60 price target.

BofA: Sources Of Growth

Cisco beat the consensus EPS estimate by a penny in the third quarter, but this doesn't properly reflect the company's strength, Liani said in a Thursday note.

Multiple product refresh cycles contributed to 4-percent year-over-year revenue growth, including the Cat9K campus switching refresh, SD-WAN transition and Wi-Fi access points, the analyst said.

The refresh cycle remains in the early stages, especially the Campus architecture, which is resonating well with customers, Liani said. 

On the other hand, Cisco saw a 13-percent year-over-year decline in service provider revenue, and the business unit has consistently declined since the end of 2016, he said.

Cisco does expect a recovery in 2020 as carriers deploy Core routers to address 5G traffic, Liani said. But the analyst said he remains "more cautious," as any negative secular trends could offset drivers of growth.

Related Link: Analysts Say Cisco Has Limited Upside Following Earnings Beat

KeyBanc: What Bulls, Bears Like

Cisco's report included "no major surprises," and bulls can continue pointing to Cat9K as a driver of growth through at least the first half of 2020, Kurtz said in a Wednesday note.

Cisco saw minimal disruption to its business from tariffs, and the macro commentary — especially in emerging markets — remains favorable, the analyst said. 

Bulls are also likely to appreciate the growth in recurring revenue, as software revenue coming from subscriptions improved from 56 percent last year to 65 percent, Kurtz said. This gives investors a potential hedge against volatility in the non-SP business units, he said. 

Bears have two items to point out, including deferred revenue that came in weaker than expected and is down 8 percent year-over-year in aggregate, the analyst said. And SP orders fell 13 percent due to weaker spend in the Americas ahead of a broader 5G refresh, he said. 

Raymond James: Strong Trends

Cisco's report showed multiple strong trends, Leopold said in a Wednesday note.

They are:

• Stronger-than-expected sales in Infrastructure, led by 9-percent growth in Enterprises.
• Strength in the Application Centric Infrastructure and wireless portfolios.
• Datacenter growth from Hyperflex and servers.
• Routing benefits from SD-WAN.
• Security posted a surprise beat, likely due to its broadening portfolio and/or market share gains.

Price Action

Cisco shares were trading up nearly 7 percent at $56.10 at the time of publication Thursday.

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