Is 2018 The Year Cisco Believers Have Been Waiting For?

Cisco Systems, Inc. (NASDAQ: CSCO) fiscal first quarter results were in-line with analyst expectations, but management's second quarter guidance was notably ahead of expectations.

The Analyst

Bernstein's Pierre Ferragu maintains an Outperform rating on Cisco's stock with a price target boosted from $38 to $40.

The Thesis

Cisco's earnings report signals that the company's transition toward a subscription model is moving faster than previously expected, Ferragu said in a Thursday note. 

Recurring revenue accounted for 32 percent of total sales and 12 percent of product sales, according to Bernstein. Deferred revenue from subscriptions and software rose 37 percent. 

Cisco's second quarter guidance shows the company is able to grow revenues despite facing ongoing transition headwinds, the analyst said. Cisco's transition toward a subscription model will accelerate in the second quarter and beyond, given strong initial reception for the Catalyst 9000 product line and interest for SD WAN solutions, Ferragu said. 

Cisco's earnings report shows that the company's transition will result in more stable revenues, improved profitability and better growth, in Bernstein's view. While the transition could result in near-term revenue headwinds this year, they will "dissipate over time," Ferragu said. 

Price Action

Shares of Cisco gained more than 6 percent Thursday morning and hit a new 52-week high of $36.67.

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