New Street cuts Cisco stock rating to neutral, lowers target to $70

On Friday, New Street Research lowered its rating on Cisco Systems Inc (NASDAQ:CSCO) from Buy to Neutral and adjusted the price target to $70 from $75. The firm’s analysts cited the company’s solid performance with revenues and earnings per share (EPS) surpassing expectations, noting a year-over-year increase of 11% and 7%, respectively. According to InvestingPro data, Cisco, with its substantial market capitalization of $252.46 billion, currently trades at a P/E ratio of 25.88x and appears slightly overvalued based on its Fair Value analysis. However, they highlighted that Cisco’s gross margin expansion has stalled, with a slight decline in the April 2025 quarter and an anticipated further drop in the July 2025 quarter, attributed to tariffs.

Cisco’s orders showed a robust 9% year-over-year growth excluding Splunk (NASDAQ:SPLK), with strength observed across all end markets. The analysts pointed out that the recovery they had anticipated is now complete, with July 2025 quarter revenues expected to align with long-term trends, projecting a potential annual growth rate of 3-5% for the company.

Despite the positive growth outlook, the report mentioned that gross margins had declined by 10 basis points quarter-over-quarter in April 2025 and are expected to decline by an additional 60 basis points in the July 2025 quarter. The analysts believe that while margin expansion should resume eventually, the current valuation metrics pose a risk with limited upside potential. InvestingPro data reveals the stock has shown remarkable strength, with a 7.51% return in the past week and an impressive 36.93% return over the last year. InvestingPro subscribers have access to 10 additional key insights about Cisco’s financial health and market position.

New Street Research noted that the company’s revenue growth is likely to decelerate moving forward. They also mentioned that Cisco’s current valuation is on the higher end, indicating a riskier investment profile with less room for gains. The analysts acknowledged Cisco’s decent return potential, including a 3% dividend yield and an 8% earnings growth rate, but suggested that the stock is beyond an optimal entry point for new investment.

In summary, New Street Research’s downgrade of Cisco stock to Neutral with a $70 price target reflects their view that while the company continues to perform well, the current stock valuation and anticipated slowdown in revenue growth limit the potential for significant stock appreciation in the near term. The company maintains a solid 2.55% dividend yield and has attracted positive attention from analysts, with 15 analysts recently revising their earnings estimates upward. For detailed analysis and comprehensive insights, investors can access Cisco’s full Pro Research Report, available exclusively on InvestingPro, along with in-depth analysis of 1,400+ other US stocks.

In other recent news, Cisco Systems Inc. has reported strong financial results for its third fiscal quarter, exceeding expectations in both revenue and earnings per share (EPS). The company posted $14.15 billion in revenue and $0.96 in EPS, surpassing consensus estimates. Cisco’s robust performance was driven by significant growth in its Networking segment and a notable increase in artificial intelligence (AI) orders, which reached $600 million, allowing the company to surpass its $1 billion AI order target ahead of schedule.

Analysts have responded positively to these developments, with Citi raising its price target for Cisco to $71 and maintaining a Buy rating, while Evercore ISI increased its target to $72 and reaffirmed an Outperform rating. JPMorgan also raised its price target to $73, citing strong AI orders and resilient Enterprise IT Infrastructure spending as key factors. UBS maintained a Neutral rating with a $70 price target, noting that the current stock price reflects Cisco’s enhanced performance.

Cisco’s guidance for the upcoming quarter suggests continued growth, with anticipated revenue of $14.6 billion and EPS of $0.97. The company has also highlighted opportunities in "sovereign AI" and enterprise AI order momentum, which are expected to contribute to its future growth. Despite some concerns about tariffs and macroeconomic conditions, analysts remain optimistic about Cisco’s prospects, particularly in the AI space. Additionally, Cisco announced the upcoming retirement of its Chief Financial Officer, with Mark Patterson set to take over the role, ensuring a smooth transition in leadership.

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