Analyst Takes Cisco Systems, Inc. (CSCO) FQ1 Beat as a Promising Sign That a Turnaround Awaits Right Around the Corner

GBH Insights' Daniel Ives lifts price target after a strong first fiscal quarterly show from CSCO for 2018.


Cisco Systems, Inc. (NASDAQ:CSCO) shares were jumping almost 6% in after-hours trading on back of the networking giant’s first fiscal quarter turnout, which has GBH Insights analyst Daniel Ives breathing a sigh of relief and bumping up his state of confidence.

As far as Ives is concerned, Cisco’s first fiscal quarter performance marks a clear “step in the right direction” for the giant, who outclassed the Street on total revenues of $12.14 billion and EPS of $0.61. In comparison, consensus had set expectations for Cisco to earn $12.10 billion in revenues and $0.60 in EPS for the quarter.

Cisco’s security segment shot up 8% year-over-year with its Application business likewise experiencing growth to the tune of 6% year-over-year. To Ives, this speaks to key “underlying growth engines” at play that have become increasingly crucial to the giant’s evolution. Calling mature hardware Cisco’s “bread and butter” for the short-term, the analyst looks ahead to a blended SaaS model centered on software as a big catalyst that will help the company endure a challenging transformation period to close out 2018 as a “healthier” tech player.

What does a strong first fiscal quarter showcase along with a higher-than-anticipated guide for the second fiscal quarter spell out for Cisco in its comeback? Ives notes that as the company battles “clear secular growth challenges on its core switching/routing DNA and choppy results over the past year,” he sees the print “as a clear sign the Cisco turnaround has started to turn the corner.”

Overall, “With Cisco in the midst of a multi-year strategic shift, the bulls were yearning for any positive news on this story as the combination of a massive enterprise installed base, move to a software centric model, and smart acquisition strategy (AppDynamics, BroadSoft) lays the groundwork for modest growth to return to the story over the next 12 to 18 months. While the macro environment remains very choppy especially on ‘large ticket’ traditional networking deals, we are seeing the combination of better execution, newer product initiatives on cloud/security/IoT, and the focus on recurring revenue translating into a modestly improved selling environment for Cisco in the field and an expanding pipeline heading into the rest of FY18,” Ives contends.

Giving kudos to better execution and a more robust bookings track approaching the rest of fiscal 2018, the analyst reiterates an Attractive rating on CSCO stock while boosting the price target from $38 to $40, which implies a 17% increase from where the shares last closed. (To watch Ives’ track record, click here)

Most of the Street’s take echoes confidently around the networking giant’s opportunity in the tech-verse, as TipRanks analytics exhibit CSCO as a Strong Buy. Out of 18 analysts polled by TipRanks in the last 3 months, 14 are bullish on Cisco stock while 4 maintain a Hold. With a return potential of 7%, the stock’s consensus target price stands at $36.50.

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