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Cisco Systems (NASDAQ:CSCO) shares were in focus on Monday as investment firm J.P. Morgan put a Neutral rating on the networking giant, citing a “muted” outlook in the medium term.
Shares rose fractionally in premarket trading.
“We are establishing a Neutral rating despite what we see as a favorable near-term set up with moderating incremental headwinds in the Networking market and discounted relative valuation in the context of the re-rating of the group, as we believe the medium-term outlook remains muted with our expectations for an EPS CAGR of 5%+ in FY24-FY27,” analyst Samik Chatterjee wrote. Chatterjee also put a $53 price target on the stock.
Cisco’s campus networking business is still facing challenges compared to the broader recovery, as sales of switches and WLAN, which surged after the pandemic, have seen a pause in demand, Chatterjee said.
“With a recently refreshed installed base, the Campus market is now in correction; while the pace of incremental headwinds are moderating following a few consecutive quarters of declines, at the same time we expect a sluggish recovery tracking below the long-term growth rate before we return to normal replacement cycles,” he explained.
And while the recently closed Splunk acquisition should help Cisco’s overall top line growth, it is not expected to be anything more than roughly 100 basis points, pushing the metric to around 3.5%, Chatterjee added.
