Steven Milunovich of UBS maintained a Buy rating and $32 price target on shares of Cisco Systems, Inc.(NASDAQ:CSCO) in a new research report on Monday. The analyst highlighted two negative concerns he has moving forward, but cited two positive trends that outweigh his concerns.
Milunovich wrote, “Likely the two biggest risks are commoditization of the switch and router markets by white boxes, and a shift of workloads off prem. We expect Cisco’s switch/routing/wireless LAN segment to grow at a 1% rate vs the company’s expected 2-4%. Also, we estimate that 20-25% of Cisco’s revenue is negatively exposed to the cloud, material but not as high as for other legacy vendors. Cisco is working more closely with US hyperscalers but we believe it is vulnerable to Huawei in China. Our VAR survey does find increased discounting by Cisco.”
To the company’s credit, the analyst believes theat Cisco has two major positives: “It enjoys leadership in networking, a less commoditized part of infrastructure, and rates high in user surveys, providing permission to extend its solutions and move into adjacencies. Our expectations are above consensus for the security, data center, and wireless segments. The recent Tetration analytics introduction is representative of a greater Cisco presence in the data center. In security we think Cisco should gain share in a fragmented market. The push for recurring revenue should be gradual but help maintain margins.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Steven Milunovich has a yearly average return of -0.2% and a 42% success rate. Milunovich has a 7.3% average return when recommending CSCO, and is ranked #2602 out of 3974 analysts.
Out of the 23 analysts polled by TipRanks (in the past 3 months), 15 rate Cisco stock a Buy, 7 rate the stock a Hold and 1 recommends to Sell. With a return potential of 7%, the stock’s consensus target price stands at $31.05.