Cisco Price Target Cut By Goldman Sachs, Rating Downgraded

The target price of Cisco Systems, Inc. (NASDAQ:CSCO) was recently cut by more than 8% to $32 from $35 by investment firm Goldman Sachs (NYSE:GS). In addition, analysts downgraded the stock’s rating to Neutral from Buy.

Following the downgrade, Cisco was down 1.07% to $28.65.

Why the Downgrade?

Goldman Sachs’ analyst Simona Jankowski remains concerned that Cisco’s earnings growth might slow down in the near term. Jankowski believes that increasing competition from Hewlett Packard Enterprise (HPE) and Juniper Networks (NYSE:JNPR) will lower Cisco’s earnings growth.

Jankowski said, “we believe HPE now has a much more rounded networking portfolio with the Aruba asset, as well as a much stronger focus on enterprise IT infrastructure. Also HPE’s leadership in servers and significant presence in storage (where Cisco only participates through partnerships rather than directly) can give it a competitive advantage in situations where the customer is looking for bundled solutions. In the data center segment, we see Juniper as a more meaningful competitor.”

In addition to increased competition, the analyst remains concerned about the significant increase in management turnover over the last few months. This could lead to execution risks, which could hurt the profits for the company.

Though Cisco's shift to a more recurring revenue model and its increasing market share in the Internet of Things market remain positives for the long run, the analyst does not expect any tangible earnings growth in the near term.She expects the company to continue to struggle in the near future due to competitive pressure and poor execution.

CISCO SYSTEMS Price

CISCO SYSTEMS Price | CISCO SYSTEMS Quote

Bottom Line

Cisco Systems is the leading IP-based networking company. It also offers other products and services to service providers, companies, commercial users and individuals.

Despite intensifying competition from several smaller players, Cisco remains strong in its domain. Though we continue to believe that a certain amount of market share erosion is inevitable as competitors start making aggressively priced products of similar quality and customers think about second sourcing, it will take a lot to make a significant dent in Cisco’s revenues. On the other hand, expansion into relatively under-penetrated markets will continue to drive Cisco’s growth.

Stocks to Consider

Some stocks that have been performing well in the same space are Netgear Inc. (NASDAQ:NTGR) , Radcom Ltd. (NASDAQ:RDCM) and Digi International Inc. (NASDAQ:DGII) . While Netgear and Radcom sport a Zacks Rank #1 (Strong Buy), Digi International has a Zacks Rank #2 (Buy).