Cisco Finds Fans as Analysts See Rebound in Enterprise Spending
(Bloomberg) -- Cisco Systems Inc. is getting another look on Wall Street as a return to offices points to an environment where the networking company could see a long-awaited return to revenue growth.
The stock was a laggard last year as the pandemic pushed employers to embrace remote work, but a return to offices is expected to contribute to an acceleration in enterprise IT spending, providing a tailwind for growth.
This idea has spurred at least three analysts to upgrade the stock in recent weeks, including Wolfe Research on Friday. Wolfe analyst Jeffrey Kvaal wrote that strong IT spending “should prove a tailwind to Cisco estimates” through its 2022 fiscal year.
Shares rose 2.6% on Friday. The stock is up about 18% so far this year, above the nearly 10% gain of the S&P 500 information technology index. Cisco fell almost 7% in 2020, compared with the tech index’s gain of more than 40%.
As employees return to offices, “we could see a shift in IT spending toward enterprise projects that were left behind in Covid,” said Ted Mortonson, a technology strategist with Robert W. Baird & Co. “Between enterprise spending, better valuations, and a possible lift from infrastructure, you’re seeing names like Cisco, [Hewlett Packard Enterprise], and IBM go up and to the right.”
Cisco is scheduled to report third-quarter results next month. Wall Street is looking for adjusted earnings of 82 cents a share while revenue grows about 5% to $12.59 billion. That would represent the fastest pace of growth since 2018, and it comes after five straight quarters with negative growth. Last quarter, Cisco disappointed after it said the pandemic was still having a negative impact on growth.
Goldman Sachs upgraded the stock last month, writing that a return to offices would lead to better IT spending in general, with Cisco also seeing a tailwind from a replacement cycle for older technology. JPMorgan upgraded the stock in early March, also citing a recovery in enterprise spending.
©2021 Bloomberg L.P.