Citi Research analysts Ehud Gelblum and Kimberly Watkins released a new research report on Cisco Systems, Inc. (NASDAQ:CSCO) yesterday. The report initiates Citi’s coverage of Cisco with a Sell rating and an open-ended $18 price target on the stock.

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Slowing revenues

Gelblum and Watkins argue that Cisco Systems, Inc. (NASDAQ:CSCO)’s internal projections of 5-7% revenue growth over the next three years are overly optimistic. They only anticipate revenue growth in the 3% to 5% range for Cisco over the next three years, due to a decreasing share in both the routing and data center switching markets.

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Cisco Systems router market share

Cisco Systems, Inc. (NASDAQ:CSCO)’s core router market share is also likely to decline, according to the Citi analysts. They say that the simultaneous product launches of the NCS and the CRS-X devices could lead to customer confusion, and they also expect a significantly more competitive market environment given Alcatel Lucent SA (NYSE:ALU)’s new 7950 core router. Their models anticipate that Cisco’s core router share drops by a whopping 13%, from 58% in Q3 2013 to 45% at year-end 2016.

Data center switching share

The analysts point out that the overall data center switching market is currently a bit soft and likely to remain so for the next few months as buyers wait for the release of several new products. When you add in further weakness due to the fact that Cisco Systems, Inc. (NASDAQ:CSCO) decided to not support competing controllers for their Insiema solution, Gelblum and Watkins suggest Cisco could be looking at a data center switching share loss of up to six points as well as around two points of gross margin pressure over the upcoming 3 years.

Shrinking P/E multiple

The Citi analysts also see Cisco Systems, Inc. (NASDAQ:CSCO)’s industry PE multiple declining over time. “Our $18 target price equates to 9X our CY 2014 EPS estimate of $1.94, below the Street at $2.03, a discount to the market multiple at 15.4X but still a premium to tech turnaround HPQ at 7.5X.”

Cisco Systems, Inc. (NASDAQ:CSCO) was trading at $20.88, down 33 cents at 1:43 PM EST Wednesday.

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