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Goldman Sachs’s Views on Cisco Systems

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Dec. 4 2020, Updated 10:53 a.m. ET

Cisco added $25 billion to buyback budget

While Cisco Systems (CSCO) stock has had an impressive rally this year, Goldman Sachs (GS) views this as only the beginning. In a recent note to clients cited by CNBC, Goldman added Cisco to its conviction list and upgraded its 12-month price target for the stock to $54 from $51. The new price target implies an upside of 25% for Cisco stock over the next 12 months.

According to Goldman Sachs, Cisco is poised to deliver significant returns to shareholders, thanks in part to the US tax cut enabling American companies to boost their capital return programs as they repatriate overseas savings at a lower tax rate. Cisco recently added $25 billion to its stock repurchase program, boosting its buyback budget to $31 billion including the balance under its previous buyback authorization. In addition to boosting its stock repurchase budget, Cisco increased its quarterly dividend by 14%.

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Healthy end markets for Cisco products

Goldman Sachs is also excited about Cisco’s healthy end markets. Cisco generated $11.9 billion in revenue in fiscal 2Q18 (quarter ended January 2018), representing an increase of 3.0% YoY (year-over-year), marking the first YoY revenue rise in eight quarters.

IBM’s (IBM) revenue increased 4.0% YoY in the quarter comparable to Cisco’s fiscal 2Q18, and Palo Alto Networks’ (PANW) and Netgear’s (NTGR) revenue increased 28.4% and 7.9% YoY. At Juniper Networks (JNPR), revenue fell 11% YoY.

Cisco weathers stock market storm

In a week that saw a global crash in stocks, Cisco outperformed the broader market. Whereas Cisco stock fell 5.4% in the week ended March 23, the NASDAQ fell 6.5%.

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