Investing.com -- On Friday, analysts at New Street Research downgraded Cisco Systems (NASDAQ:CSCO) to Neutral, saying the company’s post-downturn rebound has largely run its course and investors should now "wait for the next entry point."

In a note, Jefferies analysts acknowledged that Cisco delivered strong third-quarter results, beating expectations across the board.

Advertisement: High Yield Savings Offers

Earn 4.10% APY** on balances of $5,000 or more  View Offer

Earn up to 4.00% APY with Savings Pods  View Offer

Earn up to 3.80% APY¹ & up to $300 Cash Bonus with Direct Deposit  View Offer

Powered by Money.com - Yahoo may earn commission from the links above.

Revenue rose 11% year over year, while earnings per share were 7% higher than expected. “Strong orders, up 9% YoY ex-Splunk, with broad-based strength across end markets,” the analysts wrote.

However, Jefferies said, “The recovery we expected has played out,” noting that Cisco’s July-quarter revenues are now back to their long-term trendline and likely to grow at a more modest pace of 3% to 5% annually going forward.

While Cisco’s software mix offers a long-term path for margin expansion, near-term profitability pressures are said to remain.

The analysts pointed to a 10 basis point decline in gross margins last quarter, with a further 60 basis point drop forecast for the upcoming quarter, “driven by tariffs.”

Despite a decent outlook—Jefferies sees 3% dividend yield and 8% earnings growth—Cisco’s valuation “metrics are in their higher tier and present a risk without much upside.”

The analysts added that revenue growth “is likely to slow from here.”

Jefferies cut its rating from Buy to Neutral and maintained a $70 price target, saying the stock is “in a good place” but that the best opportunity to buy has passed.

Related articles

Cisco cut to Neutral at New Street Research as ’recovery played out’

Berkshire Hathaway more than doubles Constellation Brands stake

HSBC lifts Carnival Corp. rating as it is now ‘in calmer waters’

View Comments