FBR Capital Downgrades Cisco Systems to “Underperform” (CSC)

Routers and switches may have hit a dead end, said FBR Capital analysts on Thursday. As such, they downgraded networking systems giant Cisco Systems, Inc. (CSCO) as it face these industry headwinds.

The analysts downgraded CSCO from “Market Perform” to “Underperform” and see shares reaching $17, down from the previous target of $22. This new valuation suggests a 21% downside to Wednesday’s closing price of $21.52.

“We believe Cisco will become increasingly more challenged to offset weaker-than-expected routing and switching demand as it works to transition to a more software- and service-centric business model,” a FBR Capital analyst said in the downgrade report. “Looking ahead, we see the potential for additional negative technological trends that could significantly blur the lines between routers, switches AND servers.”

They continued, “As a result, we expect: (1) a slow, but meaningful, reduction in the number of routers and switches deployed into networks; (2) the adoption of an increasingly larger mix of white box, lower-margin product; (3) the announcement of new competitive products and vendors that could negatively affect gross margins at both companies and across the space. We encourage investors to take profits, and we move to the sidelines as we work to better understand the significant changes occurring across the networking landscape.”

Cisco shares were down 63 cents, or -2.91%, during pre-market trading on Thursday. The stock is up +8.19% over the past year.

The Bottom Line
Shares of Cisco Systems (CSCO) have a dividend yield of 2.58% based on last night’s closing price of $21.67 and the company’s annualized dividend payout of 56 cents per share.

Cisco Systems, Inc. (CSCO) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.3 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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