By Senad Karaahmetovic
A Citi analyst reiterated a Sell rating on Cisco Systems (NASDAQ:CSCO) as he argues the company is losing market share to both Arista Networks (NYSE:ANET) and Juniper Networks (NYSE:JNPR).
He also reiterated a $40 per share price target, which implies a downside risk of about 14%. Citi remains the only firm with a Sell rating on Cisco stock.
“Our view is current supply chain challenges are more of a headwind for Cisco than for its peers as peers have been ordering and building for upside to gain share from Cisco, and the share losses by Cisco are accelerating. We believe competitors have been able to procure more parts than Cisco, which is hurting Cisco’s sales and market share,” he said in a client note.
The analyst also reminded investors that the networking company is facing tough comps while orders are “materially slowing” on the other hand.
“We emphasize that we see no financial cash flow or going concern issues with Cisco; rather, we believe the stock will trade lower due to valuation multiple compression with inventory issues and share losses. We see both Arista and Juniper gaining share from Cisco in the coming quarters, and this will likely pressure Cisco’s valuation multiple,” he added.
Heading into the FQ4 print, he is mildly below consensus for revenue, EPS, and operating margin.
Similarly, a Morgan Stanley (NYSE:MS) analyst is “leaning cautious” on Cisco into the print as “limited improvement in supply creates a difficult setup on FQ1, particularly as forward ordering and deteriorating macro create a challenging setup into FY23.”
The analyst is positive about Cisco’s results for FQ4 with his cautious view mostly based on the challenging outlook. She sees FQ1 estimates at risk given limited supply chain improvements.
“Our EW rating on CSCO is largely a factor of more cautious view on enterprise spending environment, particularly coupled with valuation that has held relatively strong,” she wrote in a research note.