Cisco Analysts On COVID-19 Recovery, Challenges, Valuation After Q2 Print

Cisco Systems, Inc. CSCO reported second-quarter results late Wednesday that came in ahead of expectations. Here's what the Street has to say. 

The Cisco Analysts: Morgan Stanley analyst Meta Marshall maintained an Overweight rating and $54 price target for Cisco shares.

Raymond James analyst Simon Leopold maintained an Outperform rating and nudged the price target from $49 to $50.

Needham analyst Alex Henderson maintained a Hold rating.

KeyBanc Capital Markets analyst Alex Kurtz maintained a Sector Weight rating.

Cisco Positioned For 2021 Recovery, Morgan Stanley Says: Cisco reported modest upside to Morgan Stanley's estimates as demand slowly recovers, Marshall said.  

"CSCO is our preferred way to capture upside with return to work, a recovering macro environment more broadly, and closing of a valuation gap that remains too steep relative to the S&P 500," the analyst said. 

The commentary around expectations for enterprise networking needs in a hybrid work environment is encouraging, along with improving product orders, she said. 

The second quarter will likely be Cisco's last challenging quarter, with difficult compares on back of a strong IT spending environment in the prior year, Marshall said.

The second half could see high single-digit growth thanks to easier comparisons, the pending acquisition of Acacia and IMImobile and one-year-plus delayed enterprise project activity, the analyst said. 

Although Enterprise remains the laggard, an improving trajectory in commercial business is a positive sign that demand is positioned for recovery as employees return to work, according to Morgan Stanley. 

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Why Raymond James Continues To Like Cisco: The negative stock reaction to Cisco's earnings may have to do with the April quarter guidance, which looks inadequate considering the fact that the quarter has an extra week, Leopold said.

Additionally, component shortages, the pandemic and exchange rates present challenges, the analyst said. 

Orders from the important Enterprise vertical remained challenged, but every other vertical showed improved orders, he said.

"With a recovery underway, we continue to like the stock, and our price target goes to $50."

Rosenblatt On Read-Through For Cisco's Peers: Cisco's results were at the high end of the guidance, and the fiscal year third-quarter guidance reflected continued macroeconomic improvement, Rosenblatt Securities analyst Ryan Koontz said in a note.

The retreat in the stock in reaction to the results was due to inflated investor expectations for Cisco, the analyst said. 

Cisco's results have positive read-through for cloud communications sector leaders such as RingCentral Inc RNG, Five9 Inc FIVN and Zoom Video Communications Inc ZM, all of which are all poised to see strong share gains, he said. 

Koontz also sees positive implications for Arista Networks Inc ANET, which the analyst said is likely to see surging near-term hyperscale demand for its switch products, but minimal opportunities for share gains in hyperscale routing.

Juniper Networks, Inc. JNPR could see increasing share loss in hyperscale routing to Cisco, he sad. 

Needham Says Cisco Likely To Perform In-Line: Cisco is seeing a rebound as spending intentions across Enterprise, Service Providers and Cloud are poised to rebound or accelerate, but the magnitude is underwhelming, Henderson said in a note. 

"We think CSCO is reasonably priced based on current forecasts," the analyst said.

The bias is for some upside to the estimates as the recovery accelerates, he said. 

Cisco has limited risk, but it is expected to perform just in-line, according to Needham. 

Why KeyBanc Says Cisco Is Fairly Valued: Order growth is improving, having rebounded to 1% year-over-year growth in the second quarter compared to a 5% decline in the first quarter thanks to strength in public sector and service providers, Kurtz said in a note. 

Enterprise was impacted by elongated deal cycles and weakness from COVID-19-impacted verticals such as retail and travel, the analyst said.

Historically, commercial orders have led Enterprise, giving some confidence in a continued gradual recovery, he said. 

Among products, Webscale saw double-digit order growth, and Webex and Security saw double-digit growth, Kurtz said. 

"We see CSCO fairly valued at 13x FY21E EPS (historical 10-17x) given ongoing challenges within its Enterprise customers and a modest outlook for FY22 margin growth." 

CSCO Price Action: At last check, Cisco shares were sliding 4.29% to $46.42.

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