Cisco cut to Neutral at New Street Research as ’recovery played out’

Investing.com -- On Friday, analysts at New Street Research downgraded Cisco Systems (NASDAQ:CSCO) to Neutral, saying the company’s post-downturn rebound has largely run its course and investors should now "wait for the next entry point."

In a note, Jefferies analysts acknowledged that Cisco delivered strong third-quarter results, beating expectations across the board. 

Revenue rose 11% year over year, while earnings per share were 7% higher than expected. “Strong orders, up 9% YoY ex-Splunk, with broad-based strength across end markets,” the analysts wrote.

However, Jefferies said, “The recovery we expected has played out,” noting that Cisco’s July-quarter revenues are now back to their long-term trendline and likely to grow at a more modest pace of 3% to 5% annually going forward.

While Cisco’s software mix offers a long-term path for margin expansion, near-term profitability pressures are said to remain. 

The analysts pointed to a 10 basis point decline in gross margins last quarter, with a further 60 basis point drop forecast for the upcoming quarter, “driven by tariffs.”

Despite a decent outlook—Jefferies sees 3% dividend yield and 8% earnings growth—Cisco’s valuation “metrics are in their higher tier and present a risk without much upside.” 

The analysts added that revenue growth “is likely to slow from here.”

Jefferies cut its rating from Buy to Neutral and maintained a $70 price target, saying the stock is “in a good place” but that the best opportunity to buy has passed.