Cisco's (CSCO) Fundamentals Improving, Pacific Crest Upgrades to Overweight

Pacific Crest upgraded Cisco (NASDAQ: CSCO) from Sector Weight to Overweight with a price target of $36. Analyst Brent Bracelin pointed to improving fundamentals and momentum in Cloud.

"The April quarter could mark the beginning of a multiquarter recovery driven by new product cycles across switching, routing, wireless and servers. We are raising estimates slightly on positive reseller feedback and upgrading CSCO to Overweight on the assumption that improving fundamentals and cloud momentum can justify earnings and multiple expansion in 2H15 and into 2016," said Bracelin.

"Product revenue has declined sequentially four out of the past six quarters. However, the April quarter should mark the beginning of a multiquarter recovery for Cisco driven by several company-specific product cycle tailwinds across switching, routing, servers and wireless. These segments combined represent about 75% of product sales. We are raising our estimates based on slight upside to 4.7% to 5% revenue growth this quarter with an upward bias to 2.7% growth next quarter. Possibility of a strong 2H rebound in service provider spending also gives us an upward bias entering F2016," continued the analyst.

On Cloud momentum Bracelin said, "The FTM P/E multiple has expanded in the past three years to 13x from a trough of 9x as software-defined networking (SDN) has turned from a threat into an opportunity. However, this remains a substantial discount to the broader S&P500 at 17.6x and peers at 14.2x. We view cloud momentum around Cisco's Intercloud strategy, based on its 65-plus partners and across 350 data centers in just one year, as a catalyst that could turn cloud from a threat into an opportunity, justifying further multiple expansion."

For an analyst ratings summary and ratings history on Cisco click here. For more ratings news on Cisco click here.

Shares of Cisco closed at $29.23 yesterday.

You May Also Be Interested In

• BofA Securities Double Upgrades Sonic Auto (SAH) to Buy
• VeriSign (VRSN) PT Lowered to $215 at Citi
• Barclays Upgrades Enphase Energy (ENPH) to Overweight, 'Approaching inflection point'