raisbeckfoto/iStock Unreleased via Getty Images
Cisco Systems (CSCO -1.1%) is lower amid a broader technology rally after Citi downgrades the stock to Sell, expecting some challenge to its share from rivals.
Supply-chain challenges are hurting Cisco’s ability to procure parts – and it’s hurting Cisco more than competitors, analyst Jim Suva notes.
The risks to the supply chain are well documented at this point, but Suva says Citi didn’t see two new events occurring. “First, a large increase in first responder (police) technology advancements (video) and security with funding needs being met by increases in state and local budgets (increased inflows of property tax revenues and federal government stimulus).”
Second, the conflict between Russia and Ukraine has spurred a big increase in defense spending, particularly for technology defense items, he notes. Keysight Technologies (KEYS +1.4%) and Motorola Solutions (MSI +0.6%) are particular beneficiaries there, he says.
Arista Networks (ANET +2.7%) has shifted its supply chain to be more proactive with orders, though, and Suva notes upside for that stock as it takes share from Cisco both in switching and routing. “Arista is building products with confidence to continue to gain share and post upside to expectations”; meanwhile, there are signs that service providers – Arista’s biggest growth vertical – may increase capital spending. Citi rates Arista a Buy with a $160 price target (implying 22% upside).
With the cut to Sell, Citi has slashed Cisco’s price target to $45 from $65, implying 14% downside ahead.
Citi’s also upgraded Juniper Networks (JNPR +0.8%) to Neutral from Sell, expecting it can grab some share as well. It has a $36 target, or 4% upside from current pricing.
Jefferies also recently took up the issue of supply chains and network equipment providers, and similarly came to the conclusion that Arista and Juniper were well positioned on supply chain risk.
