Wall Street is so bullish about Trump's tax plan a bank just ‘double upgraded’ Cisco on it

Key Points
  • Credit Suisse believes President Donald Trump's corporate tax reform plan will allow Cisco to implement larger stock buybacks and do more "transformative" acquisitions.
  • The firm raises its rating two notches on the tech giant to outperform from underperform.
Cisco gets a double upgrade

Credit Suisse told investors to buy Cisco shares because the company will thrive under President Donald Trump's tax reform, saying it will enable an increase to its shareholder return program and allow for more strategic acquisitions.

The firm raised its rating on the tech giant two notches to outperform from underperform, a rare "double upgrade."

White House officials revealed on Wednesday President Trump's plan for large tax cuts for repatriated offshore corporate profits and a reduction of the corporate tax rate.

"We believe the possibility of an upcoming repatriation and balanced approach towards M&A [mergers and acquisitions] and capital return could drive [long-term] EPS power," analyst Kulbinder Garcha wrote in a note to clients Thursday. "In an environment of tax reform, we believe the company has the capacity to accelerate the company's transition towards a diversified IT player."

Garcha raised his Cisco price target to $40 from $27, representing 20 percent upside from Wednesday's close.

The analyst cited how the company has $62 billion cash offshore, which can be "unleashed" under tax repatriation reform. If Trump's tax plan is passed, he estimates Cisco can return an additional $30 billion of capital to shareholders during the next five years and use another $20 billion for "transformative" mergers and acquisitions.

"The combination of a potential buyback … combined with accretion from M&A, has the capacity to drive Cisco EPS materially higher in the coming years," he wrote.

Cisco will report fiscal third quarter financial results on May 17.