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Cisco's Quarter Reinforced Jefferies Confidence, Buy Rating

The July quarter results reported by Cisco Systems, Inc. CSCO “reinforced our confidence” in both the company’s business and management’s ability to drive EPS power, despite macro uncertainties, Jefferies’ George C. Notter said in a report. He maintained a Buy rating on the company, with a price target of $35.

Cisco reported robust July quarter results, with overall sales of $12.64 billion, higher than the Street’s $12.57 billion, and EPS of $0.63, ahead of the Street’s $0.60.

Incrementally Better Valuations Ahead

Analyst Notter mentioned that the valuation of Cisco’s business could improve going ahead since:

  • There seemed to be several opportunities for better growth, including Security, Hyper-converged Storage, and the SMB space
  • There is additional potential for the company to increase its capital return to shareholders, including further dividend hikes
  • “Some of the “asteroid from space” risks for Cisco are diminished, in our view (workload migration to the Public Cloud, White Box, Hardware Virtualization)”

Conservative Guidance

Cisco expects to generate $12.148-$12.394 billion in October sales, versus the Street expectation of $12.480 billion. “The revenue guidance is better than it seems in our view – we think the conversion of software sales to SaaS revenue may account for much of the delta relative to consensus,” Notter wrote.

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