Cisco is ‘defying the macro’ as stock heads for best day since 2016, analyst saysMay 16, 2019
Shares of Cisco Systems Inc. were gaining Thursday after the company beat earnings expectations and delivered an encouraging revenue forecast, suggesting to at least one analyst that the company was “defying the macro.”
Raymond James analyst Simon Leopold wrote that the company continues to see high enterprise spending, despite concerns that macroeconomic uncertainty would prompt a slowdown, especially after a strong 2018. Cisco CSCO, +6.98% also shrugged off tariff fears, and Leopold expects that the company would pass on any cost increases to its customers.
Cisco shares were up 7% in midday trading and on track for their best single-day percentage gain since Feb. 11, 2016.
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Jefferies analyst George Notter highlighted Cisco’s record of five straight quarters with organic revenue growth of 4% or better. “Perceptions about the company as a ‘melting ice cube’ fighting against workload migration, market share pressures, etc. are wrong,” Notter wrote. “To the contrary—as networks get more complex—we think Cisco’s end-to-end network capabilities become increasingly strategic to Enterprise and Service Provider customers.”
He rates the stock a buy and increased his price target to $62 from $55.
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Not all were enthusiastic about the company’s latest results, including Instinet’s Jeffrey Kvaal, who called the report “(mostly) dull as dishwater” in a note to clients Thursday.
“Slowing order growth on weakness in Service Provider is an irritant,” wrote Kvaal, who has a neutral rating and $50 target price on the shares. While Cisco’s management seemed upbeat about the potential for 5G spending to help spending next year, Kvaal is less confident. And “another quarter has come and gone without webscale progress,” he said.
Needham’s Alex Henderson said that while Cisco’s applications business grew 9% in the quarter, it posted a sequential decline. “Despite the solid progress from the ongoing shift to a software/subscription model, we remain concerned about competition from Amazon AMZN, +1.92% Google GOOGL, +1.45% and Microsoft MSFT, +2.37% who are looking to expand into this arena,” he wrote. “We also are impressed by Zoom’s ZM, +6.68% integration and low price point.”
He rates the stock at hold.
At least nine analysts raised their price targets on Cisco shares after the report, according to FactSet. The average target is $58.22, 3.6% above current levels. Of the 28 analysts tracked by FactSet who cover the stock, 21 rate it a buy and seven rate it a hold.
Cisco shares have gained 30% so far this year, as the Dow Jones Industrial Average DJIA, +1.02% has risen 11%.
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