KeyBanc initiates Cisco stock coverage with overweight rating

Investing.com - KeyBanc initiated coverage on Cisco (NASDAQ:CSCO) with an overweight rating and a price target of $77.00 on Wednesday. The stock, currently trading at $68.20, is near its 52-week high of $68.04, with InvestingPro data showing a "GOOD" overall financial health score.

The firm cited Cisco’s strategic shift toward a subscription-based revenue model in its networking and security businesses as a key factor in the positive outlook. KeyBanc believes this transition will enhance model stability and predictability, which should support valuation multiples. This transformation is reflected in Cisco’s strong financial metrics, with annual revenue reaching $55.62 billion and an impressive gross margin of 65.24%.

KeyBanc emphasized that Cisco has transformed significantly compared to five years ago, with the company’s continued mix shift toward subscriptions driving higher annual recurring revenue, a more stable revenue growth profile, and higher gross margins excluding tariffs.

The firm also highlighted strong industry trends supporting Cisco’s growth, including enterprise cloud migrations, enterprise modernization, and AI momentum, paired with new product offerings in networking and security that should produce healthy revenue growth.

While acknowledging that Cisco trades at approximately 12.2x EV/EBITDA versus its three-year average of 8.7x and the peer average of 15.8x, KeyBanc argues the premium valuation is justified based on the subscription transition, growth acceleration, and free cash flow profile. The company has maintained dividend payments for 15 consecutive years, demonstrating strong financial stability. For more detailed analysis and additional insights, check out the comprehensive Pro Research Report available on InvestingPro.

In other recent news, Cisco Systems, Inc. reported earnings and revenue that exceeded expectations, with a year-over-year increase of 11% and 7%, respectively. The company’s strong performance was driven by growth in its Networking segment and favorable conditions, such as a more advantageous tariff environment. Cisco also achieved over $600 million in artificial intelligence (AI) orders, surpassing its $1 billion target for total AI orders ahead of schedule. However, New Street Research downgraded Cisco’s stock rating from Buy to Neutral and lowered the price target to $70 due to concerns about stalled gross margin expansion and a potential slowdown in revenue growth. Similarly, UBS maintained a Neutral rating with a $70 price target, noting that while Cisco’s AI and core business developments are promising, the current stock valuation reflects these improvements. In another development, Cisco announced an equity award for its new CFO, Mark Patterson, as part of his compensation package. Additionally, Cisco has launched Duo Identity and Access Management (IAM), a security solution aimed at combating identity-based threats, reinforcing its commitment to Zero Trust security. These recent developments highlight Cisco’s ongoing efforts to enhance its market position and address emerging threats in the AI era.

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