Cisco stock is near where it was at the end of 2019.
Gabriel Bouys/AFP via Getty Images
Cisco Systems shares are getting a lift after J.P. Morgan analyst Samik Chatterjee weighed in, saying the networking-equipment company will be a prime beneficiary from a pickup in IT spending later this year.
He lifted his rating to Overweight from Neutral, with a new price target of $55, up from $50, saying he thinks the stock is undervalued. Near midday on Friday, the stock was up 3.7%, to $46.18.
Cisco (ticker: CSCO) was left out of the 2020 tech rally. The stock fell 7% for the year, and is now trading just pennies above where it finished 2019. Cisco’s business was hurt by the pandemic as some large enterprise customers paused spending amid the uncertainty created by the Covid-driven economic downturn.
Now, conditions are improving. On its most recent earnings call, Cisco projected a return to growth in the April quarter, after a 9% top-line slide in the October quarter and a flat January quarter.
Chatterjee says the anticipated rebound in enterprise IT spending is ahead of expectations. He also notes that the company is getting some traction with its push to add a subscription element to its business model. And he says the shares have underperformed other enterprise tech stocks such as Dell, HP Inc. , HP Enterprise, F5, and Xerox.
“Despite concerns stemming from the semiconductor shortages, we see Cisco as well positioned to navigate the challenges relative to peers and drive near-term upside on both revenue and gross [the April quarter],” he writes. He is bullish for the medium term as well, citing improving demand for the company’s Catalyst 9000 enterprise switches.
The bottom line: He thinks Cisco can rally from here on a return to growth, improving enterprise spending, and a revamped business model with a larger component of recurring subscription-software revenue.
Write to Eric J. Savitz at [email protected]
