Is Cisco Systems (CSCO) Set to Boom Thanks to Trump’s Repatriation Legislation?

By Carrie Williams

A look ahead towards Cisco's earningsThe US networking giant Cisco Systems Inc. (NASDAQ: CSCO) had surged ahead by nearly 5.8% last week, and is currently trading close to its 52-week high of $31.95, thanks to the earnings beat anticipated for the company’s F1Q/17 results that are set to be announced tomorrow, November 16. The stock is currently trading at $31.37.

In addition to the upcoming earnings, CSCO investors and analysts are also keenly watching out for a potential enactment of repatriation legislation by Trump, which would give humongous benefit for CSCO. Reacting to the news, UBS analyst Steven Milunovich maintained their Buy recommendation and a $35 price target on Cisco in a research note released yesterday. This PT is an upside of 11.57% from the last close price and nearly 14x that of the UBS F17 EPS estimate.

Milunovich estimates the F1Q/17 revenue of Cisco to be down by 3% sequentially (in line with the Street consensus) and the Jan quarter revenue estimate to be 2% sequentially down, a tad better than the historical trend of down 3%. However, Milunovich also expressed optimism that CSCO’s EPS for the period might be slightly higher than the consensus, as seen in the company’s trend of coming in above the high end of its gross and operating margin guidance for the past eight quarters.

Milunovich believes that Cisco’s data center switching, security, and collaboration would report solid results while the in campus switching, EMEA service providers, and servers would report a weaker revenue.

Meanwhile, everyone is currently focused on whether President-elect Trump would enact the legislation to support the repatriation of overseas cash. If it happens, Cisco stands to benefit tremendously due to its $60 billion cash overseas. According to Cisco CFO Kelly Kramer, if Trump’s Corporate Tax Repatriation Plan materializes, Cisco intends to buy back more stock using the money rather than giving special dividends. Milunovich estimates that Cisco would retire one-sixth of its shares, assuming a 10% tax rate and 50% of repatriated money used for buybacks. Consequently, the share prices of CSCO are expected to rally ahead.

Based on the analyst recommendations on CSCO in the past three months, Cisco has an overall consensus rating of a Moderate Buy, with an average price target of $33.39, according to TipRanks. This PT represents an upside of 6.44% from the stock’s last close.