Cisco (CSCO) stock is up more than 30 percent this year and has outperformed the broader S&P 500 Index in 2021. However, the stock was down 1.3 percent in the premarket session on Sept. 9 after receiving a downgraded rating from Morgan Stanley. What’s the forecast for Cisco stock in 2021 and should you buy the dip now?
Cisco is a leading provider of digital infrastructure and one of the market's largest companies. As a hardware manufacturer, Cisco was one of the worst-hit companies in the post-COVID economy. The global chip shortage makes it more difficult and expensive to build any computer-based product, like Cisco’s routers and other communications equipment.
Cisco stock is falling
On Sept. 9, Morgan Stanley analyst Meta Marshall downgraded Cisco stock to equal-weight from overweight, but increased its target price on the stock to $59 from $57. In the research note, Marshall cited Cisco’s relative valuation for the downgrade. Cisco’s fundamentals are still behind some of its competitors despite the stock’s significant surge in 2021. The analyst added that the telecom equipment company will need a stronger software growth trajectory to rise higher.
On Sept. 9, Wells Fargo analyst Aaron Rakers raised its target price on Cisco stock to $70 from $65 and maintained an overweight rating. Rakers sees the networking giant’s upcoming Investor Day event on Sept. 15 as a positive catalyst.
Cisco’s stock forecast
According to MarketBeat, analysts' average target price is $56.05 for Cisco stock, which is 4 percent below its current price. Among the 21 analysts tracking Cisco, 11 recommend a buy, while 10 recommend a hold. None of the analysts recommend selling the stock. Their highest target price of $70 is 20 percent above the stock's current price, while their lowest target of $41 is 30 percent below.
Is Cisco stock undervalued?
Cisco trades at an NTM EV-to-sales multiple of 4.4x, which looks overvalued compared to other tech stocks. Hewlett Packard Enterprise and Juniper Networks are trading at NTM EV-to-sales multiples of 1.1x and 2.0x, respectively.
Cisco stock is a good buy, but not at this price.
Cisco's earnings results for the fourth quarter of fiscal 2021 (ended July 31, 2021) demonstrated that the company is still relevant as businesses digitize their operations and create hybrid work environments that allow workers to work securely from anywhere. Cisco’s software business continues to perform well and isn’t vulnerable to chip shortages or other supply chain problems. The company’s software business revenue grew 6 percent YoY to $4 billion in the quarter, and nearly 81 percent of that was recurring.
Cisco’s infrastructure platforms sales, which include networking equipment and software, increased 13 percent YoY to $7.5 billion. This core business segment has faced challenges over the last two years. In fiscal 2022, Cisco expects its revenue to rise between 5 percent and 7 percent. That range is promising in light of Cisco's massive revenue base, which would reach $52.8 billion at the midpoint of the estimate despite supply issues that might last the whole fiscal year.
On Sept. 9, Alphabet's Google partnered with Cisco to support interoperability. This means that customers using a Cisco device can log into a Google meeting and vice versa.