Cisco Systems Offers An Opportunity To Invest In A Cybersecurity Paradigm Shift

The corporate world is in the process of making a major shift toward security-defined networks, and Cisco Systems, Inc. CSCO could be uniquely-positioned to benefit. According to Morgan Stanley analyst James Faucette, security-driven networking could be a major long-term growth opportunity for Cisco.

“We continue to see evidence in our channel checks and surveys that security sales are beginning o pull through network equipment upgrades, which we think will improve replacement cycle metrics,” Faucette explained.

Related Link: The Bullish Case For Cybersecurity In 2017

Faucette has upgraded Cisco from Equal Weight to Overweight and says the stock provides the perfect opportunity for investors who want to capitalize on this paradigm shift in cybersecurity.

“Cisco continues to drive a mix shift towards software and recurring revenues, and in conjunction with strong firewall refresh activity, will gain share of IT budgets as customers increasingly favor Cisco’s end-to-end portfolio and architecture to improve cybersecurity,” Faucette added.

Analyst's Adjustments

Given the steady push toward security-driven networking, Morgan Stanley has raised its fiscal 2018 and 2019 revenue estimates for Cisco by 1 percent. Faucette predicts the mix-shift toward software will also drive gross margin expansion as well.

In addition to the upgrade, Morgan Stanley has also raised its price target for Cisco from $32 to $39.

The price target represents a $38 valuation for Cisco’s core business based on 15x fiscal 2018 earnings and a $1 premium representing the company’s potential tax reform benefits. Morgan Stanley estimates that Cisco could reduce its total number of shares outstanding by 10–15 percent via buybacks if President Trump follows through with his plan for a repatriation tax holiday.