We’re leaving our fair value estimate unchanged after Cisco continued its strategy of acquiring niche software firms with leading positions in their fields.
01:39 PM | Email Article
On Jan. 24, Cisco
announced its intent to acquire privately held AppDynamics for $3.7 billion in cash and assumed equity awards, a hefty premium to the latest (December 2015) valuation of $1.9 billion. The transaction is expected to close in the third quarter of fiscal 2017. Strategically, Cisco continues to gobble up software companies that occupy leading positions in various niches such as security, Internet of Things, collaboration, analytics, and cloud infrastructure.
Ilya Kundozerov is an equity analyst for Morningstar.
This acquisition supports our main thesis that Cisco is focused on diversifying its revenue stream away from a heavy reliance on the core networking portfolio. We think AppDynamics will be able to leverage Cisco’s huge customer base and direct salesforce to accelerate top-line growth. We like Cisco’s software-focused acquisition approach as we believe the commoditization of hardware and migration of data center workloads to the cloud represent a long-term threat to the company’s traditional businesses. Our narrow economic moat rating and fair value estimate of $27 per share for Cisco remain unchanged.
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