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Cisco Systems’ (NASDAQ:CSCO) stock rose about 3% on Monday after BofA Securities upgraded the shares to Buy from Neutral citing three growth drivers, low expectations and valuation support.
The firm raised the price target on the shares to $60 from $55.
A team of analysts led by Tal Liani said that they upgraded the stock to Buy and see three catalysts for growth acceleration. They expect Networking to start normalizing and see renewed growth driven by Cisco’s share gains in Ethernet-based AI buildouts of hyperscalers.
The analysts expect Security growth to accelerate with the help of firewall stabilization and recent new product launches. Lastly, they see great growth synergies from Splunk’s acquisition.
While the next two quarters may remain pressured, the analysts believe this weakness is fully reflected in Street expectations and management’s guidance is adequately conservative.
Near-term trends remain challenged, and BofA models networking to decline 28.5% year-over-year in the second half of 2024. The company’s guidance is adequately conservative though, calling for 1.2% quarter-over-quarter total revenue growth in the fourth quarter of 2024 versus about 3%-4% historically, according to the analysts.
Looking beyond the second half of 2024, Liani and his team expect Observability to grow both organically and inorganically (Splunk), and they expect Security growth to accelerate from their previous 3.2% growth estimate in FY24 to their 8.3% estimate in FY26, and expect Networking growth to go from -15.9% in FY24 to +3.8% in FY26, with additional upside driven by any AI success with Cloud customers.
In Security, Splunk synergies and the recent SASE and XDR introductions should support growth advancement, the analysts added.
In Networking, the analysts note the expected migration of AI networks to Ethernet. Cisco’s alternative silicon offering, and its solid optical portfolio could create opportunities for greater presence with hyperscalers, according to Liani and his team.
They also expect Cisco to address enterprise AI opportunities with a new product based on Nvidia’s GPU, Cisco’s servers and switches and Cisco’s Cloud based management software.
Lastly, Splunk’s integration should benefit from go-to-market synergies, the analysts added.
Cisco (CSCO) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. The Seeking Alpha authors’ average rating is more positive with a Buy, while the average Wall Street analysts’ rating is Hold.
