Analyst Note| Mark Cash |
We are raising our fair value estimate for narrow-moat Cisco Systems to $54 per share from $52 after its 2021 investor day laid a robust growth trajectory. Cisco’s expectations of a compounded annual growth rate of 5%-7% through fiscal 2025 was higher than we anticipated. However, forecast adjusted earnings growth through fiscal 2025 matched the revenue growth target, which was lower than we expected. We believe that Cisco is a solid operator and expect that the growing proportion of software subscriptions and recurring revenue can help drive the bottom line at a faster rate than revenue over the longer term, helping drive our fair value increase. We consider shares modestly overvalued but believe Cisco is executing on its transformation to become more predictable and less susceptible to potential IT spending lulls.