JPMorgan upgrades Cisco as orders near a trough, says shares look inexpensive and can rally more than 20%
JPMorgan says it may be time for investors to consider scooping up Cisco Systems as order trends normalize after a spending trough, adding that the shares trade at a cheap valuation. Analyst Samik Chatterjee upgraded the networking stock to overweight from neutral, citing limited enterprise spending downside from current levels. "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," JPMorgan said in a Wednesday note, adding that Cisco's elevated backlog should offset "sluggish" investment in enterprise. Chatterjee also views the stock as cheap, currently trading at a forward price-to-earnings ratio of 12.5. He raised his 12-month price target to $62, up from $55 a share, reflecting 21% upside from Tuesday's close. Cisco has risen 7.6% year to date and added about 2% before the stock market's opening bell. CSCO YTD mountain Shares in 2023 Heading into fiscal 2024, Chatterjee expects a rising mix of software revenue to improve gross margins and sees opportunities for continued business growth. The fiscal fourth quarter, which is currently underway, should benefit from easing supply premiums, he added. "That said, the tough comps from the robust ~10% revenue growth in FY23 remains a challenge for growth in FY24 that the company has to overcome and growth expectations for FY24 should take into account the tough comps," Chatterjee wrote. — CNBC's Michael Bloom contributed reporting.