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Why Cisco Systems, Inc. Might Be a Stagnant Selection

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cisco Systems  (NASDAQ: CSCO  ) traded sluggishly on Tuesday after Barclays downgraded the networking gear gorilla from overweight to equal weight.

So what: Along with the downgrade, analyst Ben Reitzes lowered his price target to $23 (from $25), representing about 7% worth of upside to yesterday's close. So while contrarians might be attracted to the stock's weakness over the past several months, Reitzes' call suggests that the demand headwinds working against Cisco aren't letting up anytime soon.

Now what: Barclays now expects Cisco to post 2015 EPS of $2.12 on revenue of $48.1 billion, down from its prior view of $2.18 and $48.5 billion. "We believe uneven demand trends, secular headwinds, and a lack of major catalysts could keep shares range-bound over the next year," said Reitzes. "[M]aterial upside to estimates does not seem likely at this point and it is also unlikely for the shares to rerate higher until it becomes clear that the company can successfully execute on its major product transitions and fully participate in Cloud and software defined networking (SDN)." Of course, with Cisco trading at a clear P/E discount to its space and boasting a juicy 3.5%-plus dividend yield, those concerns might be providing patient Fools with a solid long-term income opportunity. 

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  • Report this Comment On March 18, 2014, at 6:05 PM, BradReeseCom wrote:

    Hi Brian,

    Cisco’s switching sales topped out Q3’FY10 and Cisco's router sales topped out Q1’FY11:

    Here's possibly 3 reasons:

    1. Huawei owns the China market and Cisco is locked out.

    2. OTTs like Amazon, Facebook and Google are building white boxes and they buy 100,000s of them.

    3. Cloud means that customers are sharing equipment and not buying their own.

    To say that Cisco's frantically trying to revive its switching sales is an understatement.

    Cisco has to find new profitable revenue sources while Cisco CEO John Chambers is doing nothing to address Cisco's profitable revenue issues as he promotes the totally meaningless nonsensical Internet of Everything.

    VMware global channel chief Dave O’Callaghan is telling partners to get ready for “the software-defined decade.”

    It's no surprise then that VMware's stockholders are winning when compared to Cisco's stockholders:


    Brad Reese

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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9/3/2015 3:59 PM
CSCO $25.90 Up +0.25 +0.97%
Cisco Systems CAPS Rating: ****