Cisco's recurring revenue model guides toward slower growth

Cisco Systems (CSCO -1%) is well into making its move toward a software/services company, it said in analyst day presentations, though a move to a recurring revenue model offers some headwinds, says Chief Financial Officer Kelly Kramer.
That includes forecasting lower overall revenue growth of 1-3% over the next three to five years, below Cisco's previous forecast for 3-6% growth.
Margins should be stable and EPS is expected to grow in mid-single digits. Cisco's still pursuing returning a minimum of 50% of free cash flow to shareholders.
After tuning in to the presentations, Credit Suisse reiterated its Outperform rating and a target price of $40 : "Ultimately the company has a strong roadmap to drive long-term earnings growth."
EPS power is underappreciated as well, the firm says: "In our M&A analysis, we see long-term CSCO EPS power of $3.30-$3.50," more than 40% above current levels, "of which 22% is driven by buyback with the rest from M&A accretion."
Meanwhile, JPMorgan is anticipating some near-term volatility from the lower growth forecast. The firm's "pleasantly surprised" by the recurring revenue plan and says the stock is "slightly undervalued," rating it a Neutral with price target of $33 (vs. current price of $31.78).
"Investor concerns were rampant for a financial model guide down," says Citi's Jim Suva, but those concerns were allayed via the presentations. He has a Buy rating and $36 price target.