Cisco Stock Is Rallying Because It’s a Reopening Play

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Cisco stock is surging. Goldman upgraded the networking giant to Buy from Neutral.

Gabriel Bouys/AFP via Getty Images

Cisco Systems

stock is on the rise Thursday after Goldman Sachs analyst Rod Hall turned bullish on the networking-infrastructure giant, upping his target to Buy from Neutral, and setting a price target of $59, implying a potential gain of about 19% from the previous day’s close.

Hall sees Cisco (ticker: CSCO) as a reopening play as businesses begin to move beyond the Covid-19 pandemic slowdown. He writes in a research note that the Cisco upgrade reflects “the prospect of increased enterprise spending on campus networking to enable a video-conferencing-heavy return to offices.” He also sees better overall corporate IT spending in general starting in the middle of the year.

“Cisco’s own order rate also suggests recovery with total orders up 1% year over year [in the January quarter] after having declined for 5 straight quarters,” he adds, with commercial orders—those from smaller businesses—leading the way. Hall also sees a big upgrade opportunity to the company’s Catalyst 9000 family of switches, with half of the installed base still using older gear.

In an interview with Barron’s last month after the company’s most recent earnings report, Cisco CEO
Chuck Robbins
said the company had a “solid quarter, continuing on a recovery path.” He said Cisco had improved growth rates in every business segment, noting the return to modest positive growth in the commercial business (which includes small- and medium-sized customers) after three quarters of negative growth that at one point hit negative 25%.

Cisco has projected April quarter revenue will be 3.5% to 5.5% higher than it was a year ago, with non-GAAP profits of 80 cents to 82 cents a share.

Hall also notes that Cisco has underperformed the

S&P 500

by 17 percentage points since January 2020. But Cisco stock on Thursday jumped 2.5% to $50.87, and the stock is up almost 15% year to date.

Write to Eric J. Savitz at [email protected]

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