Investing.com - Analysts at JPMorgan Chase (NYSE:JPM) have upgraded their rating of Cisco Systems (NASDAQ:CSCO) to "Overweight" from "Neutral," arguing the stock has headroom to rise further after rising by over 28% since reporting its fourth-quarter results in August.
In a note to clients on Monday, the analysts noted that Cisco's strong run -- during which it has outperformed the benchmark S&P 500 index -- has been driven by investor optimism around demand for networking equipment from business clients.
The world's biggest networking equipment manufacturer has been hit in recent months by a downturn in demand as customers adjusted their backlogs due to a frenzy of buying during the pandemic and supply constraints. But the networking demand environment is showing signs of improvement and is tipped to recover next year from this year's lackluster performance, analysts have said.
Cisco is due to report its latest results and issue a current-quarter outlook on Nov. 13.
The JPMorgan analysts flagged that quarterly returns can still be choppy, particularly during the "early stages of a recovery." They added that they are more focused on the opportunity for "medium-term upsides" stemming from the rebound in the enterprise networking market.
"[I]ndustry forecasts remain firm for a strong rebound of +5% growth in aggregate across WLAN as well as DC and Campus Switch (NYSE:SWCH) markets in [the 2025 calendar year] following a double-digit percentage decline in 2024," the analysts led by Samik Chatterjee said.
"Additionally, sequential revenue growth in networking revenues from peer companies that have reported to-date is leading to our confidence around [...] firmly cycling past the trough in relation to spending intent and inventory digestions from customers; and [...] limited downside to estimates despite inherent choppiness on a quarterly basis."
Shares in Cisco moved higher in early US trading Monday. The stock has now jumped by more than 17% so far this year.