Will Cisco Stock Benefit from ThousandEyes Acquisition?

At about $46 per share, Cisco Systems (NASDAQ:CSCO) stock is still down for the year at roughly 5.0%. However, the stock has registered an impressive comeback from pandemic lows of $32 in March.

Selling networking hardware is Cisco’s main revenue source. The company’s product sales of $8.6 billion in the third quarter of fiscal 2020 contributed over 70% of the total revenue. The coronavirus outbreak disrupted global manufacturing activities, which hit hardware companies’ stocks like Cisco and Apple.

Hardware stocks have started bouncing back as factories reopen in places like China. The coronavirus spread is mainly under control in China. However, there’s another dark cloud over Cisco stock—the renewed US-China tensions.

Cisco shares came under pressure in 2018 and 2019 during the US-China trade war. The countries slapped import tariffs on each other’s products. Cisco manufactures its hardware products in China for sale in the US and other markets. The tariffs drove up costs at Cisco, which forced the company to hike its product prices to cope.

Cisco stock and ThousandEyes acquisition

Although rising US-China tensions pose a risk to Cisco stock due to its potential impact on the company’s hardware business, there are still reasons for investors to remain hopeful. One reason is the company’s acquisition of ThousandEyes—a security startup.

Based in San Francisco, California, ThousandEyes provides network monitoring software. The technology helps clients gain deep visibility into the use of their applications over the Internet. The company’s clients include Microsoft, PayPal, Lyft, and Slack Technology. Cisco announced the acquisition of ThousandEyes on May 28.

Notably, ThousandEyes would help expand Cisco’s services business, which should reduce its reliance on hardware sales. Expanding the services business also means widening recurring revenue sources, which should bode well for Cisco stock in the long run.

Currently, Cisco stock spots a 30% upside to its highest Wall Street target price at $60. The stock has jumped about 10% since Cisco reported its third-quarter earnings on May 13. Despite the pandemic blow, Cisco has continued to return cash to shareholders. The company paid out $1.5 billion in dividends in the fiscal third quarter. Also, the stock repurchase program returned $981 million to shareholders during the quarter. About $10.8 billion still remains in the existing repurchase program.