Should I sell Cisco Systems shares after Wells Fargo lowered its rating?

Cisco Systems, Inc. (NASDAQ: CSCO) shares have weakened more than 10% since the beginning of the 2022 year, and the current price stands at $54.85.

Cisco raised quarterly dividend by 2.7%, and the board of directors has approved a $15 billion increase to the authorization of the stock repurchase program.

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Wells Fargo lowered its rating on Cisco

Cisco Systems, Inc. is an American multinational technology that develops networking hardware, software, telecommunications equipment, and other high-technology products.

Cisco Systems’s business continues to perform well, and the company reported better than expected second-quarter results in February. Total revenue has increased by 5.8% Y/Y to $12.7 billion, while the second quarter GAAP EPS was $0.84 (beats by $0.16).

It is important to say that the company continues to have a robust demand across the business with the third consecutive quarter with more than 30% total product order growth.

Cisco Systems announced financial guidance for the third fiscal quarter of 2022 and expects 3% to 5% growth in revenues, while the GAAP EPS should be between $0.70 to $0.74.

For the 2022 fiscal year, Cisco expects revenue growth to be in the range of 5.5% to 6.5% compared with the 2021 fiscal year, while the non-GAAP EPS should be in a range from $3.41 to $3.46.

The board of directors declared a $0.38/quarterly share dividend, which represents a 2.7% increase from the prior dividend of $0.37. The quarterly dividend will be payable on April 27 to stockholders of record as of April 05, 2022.

The board of directors approved a $15 billion increase to the authorization of the stock repurchase program, but there is no fixed termination date for the repurchase program.

Wells Fargo warned that Cisco may have trouble generating more than 2% of incremental revenue growth and lowered its rating on Cisco. Aaron Rakers, an analyst from Wells Fargo, added:

Although the firm is positive on its transition to a subscription model and gaining incremental webscale, shares are likely to stay in a range due to “limited multiple expansion” as investors focus on what could be a peaking backlog and product order growth.

Wells Fargo assigned equal weight to Cisco and also reported that Cisco could face increased competition from Arista, HP’s Intelligent Edge, and Juniper Networks.

Fundamentally looking, Cisco trades at around fifteen times TTM EBITDA, and with a market capitalization of $231 billion, shares of this company are reasonably valued.

Technical analysis

The important support level stands at $50, while $60 represents the first resistance level. If the price falls below $50, it would be a firm “sell” signal, and we have the open way to $45 or even below.

On the other side, if the price jumps above $60, the next target could be at $64.

Summary

Cisco Systems is a stable company that continues to expand its business, but Wells Fargo lowered its rating on Cisco. Wells Fargo reported that Cisco could face increased competition from Arista, HP’s Intelligent Edge, and Juniper Networks.

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