Cisco continues to see strong demand for its flagship Catalyst 9000 networking hardware products.
Gabriel Bouys/AFP via Getty Images
Cisco Systems shares are seeing some selling pressure Wednesday after Goldman Sachs analyst Rod Hall cut his rating on the networking giant to Neutral from Buy. The stock had rallied 20% since he upgraded the shares in March.
Cisco shares (ticker: CSCO) were off 1.1%, at $59.10, in recent trading. The S&P 500 is up 0.1%.
Hall writes that Goldman’s predictive index on IT spending, which the firm calls EAI (expected activity index), has started to decline from a mid-2021 peak. The index has been historically predictive of Cisco’s order trajectory. Hall contends Cisco’s enterprise and commercial orders—together more than half the business—are positively correlated to the index.
Cisco continues to see strong demand for the company’s flagship Catalyst 9000 networking hardware products, Hall writes, and he sees continued tailwinds for campus networking. But he contends those positives are balanced by the broader headwinds that he expects to materialize in IT spending.
While Hall notes that Cisco’s backlog sits at a record high, he contends order growth is a more important factor for the stock—and that orders could slow and IT spending trends weaken if he’s right.
“In our opinion, an order trajectory change and accompanying commentary on demand would likely be more important for Cisco’s stock than would backward-looking backlog clearance,” Hall writes.
The analyst also points out that Cisco lately has traded at about 17 times forward earnings, at the top of the stock’s three-year range of 13 to 17 times.
Write to Eric J. Savitz at eric.savitz@barrons.com
