JPMorgan’s Rod Hall expects the conservative consensus forecasts for 2016 for Cisco Systems, Inc. CSCO to offset the risk posed by Switching commoditization.
The analyst upgraded the rating on the company from Underweight to Neutral, while raising the price target from $17.00 to $27.50.
Limited Upside
The analyst mentioned that upside to the stock was limited, given that the valuation was in line with the historical averages, as well as longer term concerns regarding Switching commoditization.
However, Hall also believes that downside would be limited, since JPMorgan’s proprietary statistical model links the company’s revenue to GDP growth, which suggest CY2016 revenues of $49.1 billion, assumed global GDP growth of 2.5 percent for 2016.
Benefits Of Holding
Hall mentioned that investors were “getting paid to hold” the stock, given that Cisco Systems’ dividend yield of 3.8 percent is now among the highest dividend yields among the large caps in the S&P 500, following the unexpected 24 percent dividend increase in February.
“We see this high dependable cash return as a critical supporting factor for the stock in the midst of current market volatility and believe the company has the firepower to further increase should they wish to do so,” Hall stated.
In addition, the analyst expects the cautious revenue guidance for the extra 14 the week in FQ3 to set the company to beat expectations for the quarter.
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