Cisco Systems, Inc. (CSCO) Stock Is A Buy On Long-term Growth Catalysts: BofA / Merrill Lynch
In its recent research note, Bank of America Merrill Lynch reiterated a positive viewpoint on Cisco Systems Inc. stock, affirming its long term thesis on the technology company is complete in spite of the existence of some near term hurdles.
Analysts at Merrill Lynch said that their second quarter analysis is changing metrics, which reflects that Cisco Systems stock fell from 67% in the year 2013 to 65% and 62% in 2014 and second quarter of fiscal year 2015, respectively. Its stock is mostly trailing behind to that of Juniper Networks, Hewlett Packard Company and Arista Networks Inc.
In regards to information Technology Company’s latest initiatives and the related replacement cycle, as trend shows an unwelcoming picture, which specifies that the fundamentals of the company are expected to be worse, as per the analysts. They also said that these trends show headwinds for Cisco stock, as they suggest the continuing effect of market adjustment and consumers seeking to start the network to dissimilar suppliers. However, they remain bullish on long-term prospect of the company like bandwidth growth and its unchallenging valuation.
The notes state: “Starting with the positives, we reiterate our Buy as we believe that downside to the stock is limited, trading at 11x 2016 P/E and 8x ex-cash. In our view, Cisco provides investors with low risk, long-term exposure to the growing bandwidth requirements of carriers and enterprises – all driven by a plethora of new applications and trends.”
Merrill Lynch thinks that data traffic will remain an exponential extension, led by video content, cloud, machine-to-machine wireless connection, Internet of Thinks, automotive, and further applications permitted by 5G increases in low single digits with comparatively constant margins. Analysts at BofA also see strong momentum for Cisco outside of routers and switches, into teamwork, security, wireless, and data centers, balancing drops in Service-Provider video.
Moreover, the research firm revealed its thought that the company’s large exchanging upgrade will provide some benefit, together with an enhancement in carrier spending also offering upside in the current calendar year. Analysts highlighted that results up till now are less convincing, and they anticipate constant challenges in transforming, weak seasonality and steady growth in routing over the coming few quarters.
They expect growth in revenue to be just 2.3% over the coming 4 quarters with restricted margins. The analyst said, “The new CEO may be able to stir the pot over time, yet any new strategy will likely need time to materialize and bear fruit. As such, we think the stock lacks catalysts near term, and should be viewed as a low valuation/low risk way to gain exposure to the high level data growth trends.”
Cisco stock closed at $25.54 on Monday September 21.