Shares of network equipment maker Cisco (NASDAQ:CSCO) are up 2% in pre-open trading Wednesday after JPMorgan upgraded the stock, citing limited downside for enterprise spending and a cheap valuation.
JPMorgan analysts lifted the rating to Overweight from Neutral and set a $62 price target, up from $55. The new price target suggests about 21% upside from yesterday’s closing price.
“We are upgrading Cisco to Overweight from Neutral as we expect the magnitude of order moderation to be limited from hereon following deterioration in order trends for multiple quarters,” they commented. “We expect the macro to continue to drive spending sluggishness from customers, but at the same time we expect demand/orders for Networking Equipment including Wi-fi, Campus Switching, and Datacenter switching to have limited further deterioration.”
Further, they anticipate that the slow rate of investment in Enterprise spending will be counterbalanced by Cisco's favorable position, thanks to an elevated backlog that is twice the usual levels at the end of the year, as well as a substantial Remaining Performance Obligation (RPO) balance. These factors enable the company to achieve a modest growth rate of 2%, even when facing a potential decline of up to 10% in orders during FY24.
All in, they think investors will start taking a more favorable view of Cisco with shares trading at an “inexpensive” 12.5x NTM P/E.