Cisco Systems’ stock climbed on Thursday after Credit Suisse upgraded the systems networking behemoth to outperform, citing Cisco’s expectation of higher software and subscription income.
Sami Badri of Credit Suisse increased his rating from neutral to buy and lifted his price target from $56 to $75.
Cisco’s stock has been fluctuating on Thursday, most recently trading at $58.02, down 0.2 percent. In the six months leading up to Wednesday, the stock had risen 17 percent due to the company’s financial success.
“Investor sentiment is cautiously positive at the moment, but we believe this will change as CSCO delivers on its long-term forecast while scaling up its recurring revenue plans (software, subscriptions, and so on),” Badri said in a commentary.
“Product order growth is more resilient than we previously thought. The product orders definitely have a better degree of quality than investors first anticipated.”
Cisco offers IT products and services in five key technological areas: networking (Ethernet, optical, wireless, and mobility), security, collaboration (voice, video, and data), data center, and the Internet of Things.
According to Badri, this is “supported by management’s above-consensus revenue [projection] of 5% to 7% compound yearly growth through the fiscal year 2025.”
“Now that the product order dispute is settled, we feel there are more long-term dynamics at work (routing, Silicon One, etc.) that support our progressively more optimistic outlook on the company.”
Furthermore, “customer ordering in the business and public sector is expected to accelerate,” he said.
“Based on our mid-year estimates and recent calendar-year third-quarter channel checks, we continue to see signs that enterprise and public sector clients (who account for roughly 55 percent of total sales) are just getting started with new product orders and deployments.”
According to Badri, this “indicates an increase in activity.”
Cisco Systems Inc expects software and other recurring sales to account for roughly half of its revenue in four years, but its chief financial officer told Reuters that high chip costs in its hardware division will continue to put pressure on overall profitability.
Cisco is the world’s largest manufacturer of networking equipment for data centers and corporate campuses, but the company is changing its focus to selling recurring subscriptions for software like its WebEx collaboration service and cybersecurity services.
The business forecasted sales of $62.9 billion for fiscal 2025, with a compound annual growth rate of 5% to 7%. Cisco expects adjusted earnings to rise at the same rate, with a midpoint of $4.07 per share in fiscal 2025.