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Despite Supply Issues, Cisco’s Prospects Look Bright
Stock Analysis & Ideas

Despite Supply Issues, Cisco’s Prospects Look Bright

Tech stalwart Cisco Systems (NASDAQ: CSCO) recently released its results for the second quarter of Fiscal 2022, wherein both the top and bottom lines surpassed expectations. Despite some headwinds in Hybrid Work, solid momentum in Secure, Agile Networks, and End-to-End Security was a boon for the company’s top line. Moreover, solid margins also came positive.

Following the print, a rush of analysts weighed in on management’s commentary to observe how the company looked in the near term. Credit Suisse analyst Sami Badri, who has been closely following the company’s developments for the past few months, made a few good points for investors to consider.

Positive Growth Catalysts

Firstly, Badri was impressed by the guidance provided by the management for FY22. Taking into consideration that this year the third quarter is one week shorter than the third quarter of Fiscal 2021, the analyst had expected the management to provide weak guidance. Moreover, he had also expected Cisco to factor in the persisting supply disruptions that are impacting the entire networking industry. Nonetheless, Cisco raised its view for the full fiscal year revenues, which was a welcome update for Badri.

The analyst was also upbeat about the robust product order growth that Cisco delivered in the fiscal second quarter. The growth in orders was driven by the acceleration in migration of the workforce to a hybrid cloud environment. “CSCO reported 37% product order growth with Enterprise customers, which was record growth compared to the past 12 years, led by customers’ investments in network modernization and digital transformation,” noted Badri.

Another important point that Badri identified was the prospect of solid growth in Cisco’s software products, once the supply chain issues start to ease. He believes that the company’s raised revenue guidance for the current fiscal year includes this possibility.

Badri expects 6.4% year-over-year revenue growth in FY22 and about 6.2% year-over-year growth in FY23. Further, he also raised his outlook for earnings per share for FY22 to $3.43 from $3.39, and to $3.64 from $3.63 for FY23.

Rating From Experts

Going further into this year, the aforementioned points seem to be strong catalysts to lift the CSCO stock higher. Therefore, when it came to rating the company, Badri reiterated a Buy for Cisco with a price target of $73.

“With increasing revenue visibility in key enterprise customers, growing relevance with webscalers, and guiding to attractive long-term revenue/EPS growth, we continue to view CSCO as an attractive opportunity at an attractive valuation,” justified the analyst.

Overall, the Street has a Moderate Buy consensus rating based on 11 Buys and 8 Holds. The CSCO stock projection points to an average price target of $66.

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