Is Cisco Systems, Inc. (CSCO) A Short-Term Dark Horse Worth the Bet Long-Term? Oppenheimer Says Yes

After releasing disappointing fiscal fourth quarter earnings yesterday, Cisco Systems, Inc. (NASDAQ:CSCO) shareholders got the jitters, sending the stock plunging around 4% this morning. Allaying concerns, analyst Ittai Kidron of Oppenheimer believes that the networking hardware giant’s evolution has “laid out a compelling vision” based on new software and a subscription-based model. While the business model shift may take a few years to prove itself, the analyst is confident Cisco will strengthen as a result.

The company beat out the Street on revenue, bringing in $12.13 billion vs. a prediction of $12.06 million, while falling in-line on EPS with $0.61. Positively, Kidron underscores that security saw 49% growth year over year deferred growth, while subscription/recurring-related experienced 50% growth year over year. However, product revenue continued its downslide with Americas region for the fifth consecutive quarter likewise has seen a dip, falling 2% year over year, comprising 60% of Cisco’s revenue.

Kidron also comments on the varying success of product categories: “Routing, Security, and Switching were below consensus, while Collaboration, Data Center, and Wireless were above. Other was also above consensus and we highlight growing contribution from AppD/Jasper. Oct.-Q guide in line as demand environment remains mixed at best.”

“It’s important that investors understand the pace of Cisco’s model shift […] While likely to accelerate, it’ll still be several years until it’s a quarter of product revenue. The pace of transition illustrates Cisco’s challenge in returning to YoY revenue growth near term absent a macro recovery/M&A […] While near-term upside will be difficult to deliver, we see the shift driving long-term economic upside to Cisco. Meanwhile, a strong balance sheet limits downside. We are tweaking our estimates to reflect results/outlook,”  opines the analyst.

The analyst maintains an Outperform rating on CSCO with a price target of $36.00 representing a 16% rise above current trading levels. (To watch Kidron’s track record, click here)

TipRanks analytics showcase CSCO as a Buy. Out of 25 analysts polled by TipRanks in the last 3 months, 17 are bullish, while 8 are sidelined. With an upside potential of 15%, the stock’s consensus target price stands at $35.63. 

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