William Blair Equity Research analysts Jason Ader, Nimrode Moreshet and Andrew Gelbtuch rate Cisco Systems, Inc. (NASDAQ:CSCO) as outperform.

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Cisco’s stocks in the penalty box

William Blair’s analysts attended Cisco Systems, Inc. (NASDAQ:CSCO)’s analyst day event in New York last Thursday, where the company addressed recent investor disappointments head-on and outlined its plan to adapt to a fluid IT environment and establish itself as the world’s leading IT player. Although the stock could remain in the penalty box until clear signs emerge of a turn up in the business, analysts like the setup heading into 2014 for the following reasons.

Guidance has already been slashed, likely creating a near-term bottom in the business and a low expectations bar as the company manages through macro pressures and product transitions.

Risks for Cisco’s core business

Analysts at research firm believe the current weakness in the business is more cyclical than structural. While the emergence of SDN creates long-term risks for Cisco’s core business, they are seeing little impact at this point, and Cisco Systems, Inc. (NASDAQ:CSCO)’s response with Insieme is being received well (management noted 300-plus customers for the Nexus 9K since the launch five weeks ago, with a pipeline potential of several hundred million dollars).

Analysts like Cisco Systems, Inc. (NASDAQ:CSCO)’s positioning in key markets such as data center/servers, security, wireless, and collaboration (combined roughly 25% of total sales), which should create upward pressure on the growth rate.

Cisco’s backlog-driven model

While analysts reportedly may not see a material sequential rebound in revenue for a few quarters, based on Cisco Systems, Inc. (NASDAQ:CSCO)’s backlog-driven model, they believe a rebound in product orders is likely in the second half of the fiscal year based on successful platform transitions in the core switch/router business and management’s positive commentary on U.S. enterprise pipeline growth.

Analysts see limited downside risk to the stock with the current multiple at less than 10 times firm’s calendar 2014 non-GAAP EPS estimate. In addition, they see strong EPS support, with management telegraphing a more aggressive stance on buybacks, perhaps with a debt raise in the offing.