Cisco Systems Inc. is getting a second look on Wall Street as a return to offices signals an atmosphere conducive to the networking company’s long-awaited sales development.
The stock underperformed last year as employers embraced remote work, but a return to offices is expected to boost enterprise IT spending, providing a tailwind for growth.
At least three analysts have upgraded the stock in recent weeks, most recently Wolfe Research on Friday. According to Wolfe analyst Jeffrey Kvaal, strong IT spending “should act as a tailwind for Cisco estimates” through the company’s fiscal year 2022.
On Friday, shares increased by 2.6 percent. The stock has gained approximately 18% so far this year, outpacing the roughly 10% rise in the S&P 500 information technology index. Cisco dropped nearly 7% in 2020, compared to the technology index’s more than 40% rise.
When workers return to their offices, “we can see a change in IT spending on enterprise ventures that were abandoned in Covid,” according to Ted Mortonson, a technology strategist at Robert W. Baird & Co. “With increased corporate investment, improved valuations, and the possibility of a boost from infrastructure, you’re seeing Cisco, [Hewlett Packard Enterprise], and IBM move higher and to the right.”
Cisco is expected to release its third-quarter earnings report next month. Wall Street anticipates adjusted earnings of 82 cents per share and sales growth of approximately 5% to $12.59 billion. It would be the fastest growth rate since 2018, and it would follow five consecutive quarters of negative growth. Cisco disappointed investors last quarter, stating that the pandemic was still having a negative impact on progress.
Goldman Sachs upgraded the stock last month, stating that the return of offices would result in increased IT spending overall, with Cisco benefiting from a replacement period for older technology. In early March, JPMorgan upgraded the portfolio, citing a rebound in enterprise spending.