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 ) gained 1% this morning after Deutsche Bank upgraded the networking equipment gorilla from hold to buy.
So what: Along with the upgrade, analyst Brian Modoff raised his price target to $30 (from $25), representing about 22% worth of upside to yesterday's close. So while contrarians might be turned off by Cisco's price strength in recent months, Modoff's call could reflect a sense on Wall Street that the company's growth prospects still aren't fully baked into the valuation.
Now what: According to Deutsche, Cisco's risk/reward trade-off is rather attractive at this point. "A mosaic view from our meetings with the networking IT channel, IT buyers, and senior management at Cisco Live gives us conviction on a stronger than anticipated ramp of Cisco's new platforms in Datacenter Switching, Next Gen Routing and Security, Wireless, and Cloud IT Services -- heading into the FY-end Jul Q and into FY15+," said Modoff. "Cisco usually performs a point or two ahead of GDP growth -- correlates with our CY15 est for 5.8% Y/Y rev growth." When you couple that upbeat outlook with Cisco's still-juicy 3% dividend yield, it's tough to disagree with Deutsche's bullishness.
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