August 9, 2012 / 2:40 PM / in 5 years

UPDATE 1-Goldman Sachs adds Cisco to conviction buy list

3 Min Read

* Goldman cites fast growth for addition to conviction buy list

* Piper Jaffray raises rating to "overweight" from "neutral"

* Piper Jaffray raises price target to $22 from $20

* Cisco shares up 3 percent

(Adds Goldman Sachs action)

Aug 9 (Reuters) - Goldman Sachs added Cisco Systems Inc (CSCO.O) to its conviction buy list saying its enterprise networking and switching business is growing at a fast clip and the network equipment maker is in a stronger competitive position.

The brokerage also said Google Inc's (GOOG.O) reported plans to sell Motorola Mobility’s set-top box business could help Cisco gain share in the service provider video segment.

Motorola Mobility’s cable infrastructure unit, part of its set-top box business, is the biggest competitor for Cisco’s service provider video segment, Goldman said.

Cisco entered the service provider video segment -- which includes cables and modems -- through its 2006 acquisition of Scientific-Atlanta. The business accounts for 8 percent of revenue.

Goldman has a "buy" rating and $24 price target on the stock. Cisco's shares rose 3 percent to $17.68 on Thursday on the Nasdaq, before easing back to $17.55.

Separately, Piper Jaffray raised its rating on Cisco, saying better margins and cost controls will boost the company's fourth-quarter profit.

Cisco might provide some cautious commentary regarding headwinds in Europe and business from the U.S. government, but these concerns are already factored into expectations and the current stock valuation, the brokerage said.

It raised its rating on the stock to "overweight" from "neutral" and price target to $22 from $20.

The brokerage expects the company to earn adjusted earnings of 46 cents per share on revenue of $11.7 million in the fourth quarter — mostly in line with Wall Street's consensus view.

Cisco's $5 billion acquisition of TV software developer NDS will also add to earnings in the next financial year, Piper Jaffray said.

"We believe Cisco will continue to endorse 7-9 percent top line growth, with the inclusion of the NDS acquisition likely adding 2-3 percent incremental growth for FY13," analyst Troy Jensen wrote in a note.

In its biggest deal since it bought Norway's videoconferencing company Tandberg in 2009, Cisco acquired Israel-based NDS for $5 billion in March to boost its presence in the video communications market. [ID:nL5E8EF2AA]

Cisco will report fourth-quarter results on Aug. 15.

(Reporting by Sruthi Ramakrishnan; Editing by Saumyadeb Chakrabarty and Rodney Joyce)

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