6 Cisco Systems Analysts React To Investor Day Event: 'We Believe The Cautiousness Will Abate'

Cisco Systems Inc CSCO shares traded lower by 0.27% on Thursday (as of press time) after the company held its long-awaited investor day event on Wednesday.

At the event, Cisco management said it expects its six core pillars strategy will help the company expand its total addressable market from $260 billion to $400 billion by fiscal 2025.

The six pillars include:

1. Networking solutions consumed as a service.

2. Optimizing customer application experiences.

3. Creating highly secure hybrid work access and collaboration experiences.

4. Building the Internet for the future.

5. Building integrated high efficacy end-to-end security solutions delivered on-premises or in the cloud.

6. Developing new edge capabilities for a distributed world.

Cisco also issued new long-term guidance, including compound annual revenue growth of between 5% and 7% through fiscal 2025. That new revenue growth guidance includes 15% to 17% annual subscription revenue growth, 2% to 4% annual product non-subscription revenue growth and 2% to 3% services revenue growth.

Finally, management highlighted a number of its businesses that have significant expansion opportunities in the future, including its hyperscaler business, Catalyst 9K wireless and switching product lines, and its Webex video conferencing.

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Durable Growth: Credit Suisse analyst Sami Badri said the new Cisco guidance numbers suggest the company’s growth is durable.

“Investor sentiment is currently cautiously optimistic, but we believe the cautiousness will abate as CSCO executes on its LT guidance while ramping its recurring revenue plans (software, subs. etc.),” Badri wrote.

Wells Fargo analyst Aaron Rakers said Cisco’s optimistic commentary and better-than-expected growth outlook reinforced his bullish view on the stock.

“As previewed, Cisco's presentations emphasized the company's transition to expanding subscription software revenue contributions— incrementally noting that it now sees ~29% of their total Infrastructure Products revenue via software with two-thirds of this derived from subscription (vs. a total 14% software rev. contribution in F2017),” Rakers wrote.

JMP analyst Erik Suppiger said Cisco clearly sees opportunity in most recent trends in remote workplaces.

“Management also views the intertwining trends toward hybrid/remote work and the shift to hybrid, multi-cloud architectures as favorable industry tailwinds that position the company to gain share,” Suppiger wrote.

Challenges Remain: Raymond James analyst Simon Leopold said Cisco’s business remains complex, but new segmentation and disclosures help provide a bit of clarity for investors.

“The remaining challenge may stem from how Cisco engages its customers,” Leopold wrote.

Needham analyst Alex Henderson said easy comps will likely lead to some impressive numbers for Cisco over the next few quarters.

“We see Cisco as behind the curve on Cloud centric platforms based on micro-services, multi-tenant cloud native architectures,” Henderson wrote.

KeyBanc Capital Markets analyst Steve Enders said Cisco’s outlook is impressive, but the stock already trades at the high end of its historical valuation range.

“We see potential benefits from an NT hardware refresh cycle and growth vectors (e.g., Wi-Fi 6, 5G, 400G) are offset by headwinds in the subscription transition process as our channel checks indicate some potential customer pushback against the shift; meanwhile, the supply chain likely remains challenged into CY22,” Enders wrote.

Ratings And Price Targets:

• Credit Suisse has an Outperform rating and $74 target.
• Well Fargo has an Overweight rating and $70 target.
• Raymond James has an Outperform rating and $64 target.
• JMP has a Market Perform rating.
• Needham has a Hold rating.
• KeyBanc has a Sector Weight rating.

 

Image by Gerd Altmann from Pixabay