How Cisco Systems Performed Ex-Splunk, 8 Analysts Weigh In On Q3 Earnings: Here's Where 'Upside Primarily Came From'

Shares of Cisco Systems Inc CSCO declined in early trading on Thursday, even after the company reported stronger-than-expected results for its fiscal third quarter.

The results came amid an exciting earnings season. Here are some key analyst takeaways.

• Goldman Sachs analyst Michael Ng maintained a Neutral rating, while reducing the price target from $50 to $48.
• Piper Sandler analyst James Fish reiterated a Neutral rating, while lifting the price target from $51 to $52.
• Oppenheimer analyst Ittai Kidron reaffirmed an Outperform rating, while raising the price target to $58.
• Rosenblatt Securities analyst Mike Genovese maintained a Neutral rating, while raising the price target from $54 to $56.
• JPMorgan analyst Samik Chatterjee reiterated a Neutral rating and price target of $53.
• BofA Securities analyst Tal Liani maintained a Buy rating and price target of $60.
• KeyBanc analyst Thomas Blakey reaffirmed a Sector Weight rating on the stock.
• Needham analyst Alex Henderson maintained a Hold rating on the stock.

Check out other analyst stock ratings.

Goldman Sachs: Cisco System reported earnings of 88 cents per share, beating consensus of 83 cents per share, on better-than-expected gross margins, Ng said in a note. The Splunk acquisition contributed $413 million in revenues but was dilutive to earnings by 1 cent per share, he added.

Although opex was slightly higher than expected, the company's cost management was "impressive," given that "opex was flat qoq despite a partial contribution from the Splunk acquisition," the analyst stated. The guidance for the fiscal fourth quarter and full year was broadly in-line with expectations, he added.

Piper Sandler: Cisco Systems' results indicated weakness in the core Networking, Security, and Collaboration businesses, Fish said. While the reported total revenue was down 13% year-on-year to $12.7 billion, taking Splunk's contribution into account, the company's organic revenue declined by 16%, he added.

"For the most part though, upside primarily came from better Services rather than Product," the analyst wrote. "Mgmt. did see an improvement in demand throughout the quarter, with product orders coming in better than expected," he further stated.

Oppenheimer: Both revenue and earnings came above the Street estimate, benefiting from a contribution from the Splunk acquisition, favorable mix, and cost discipline, Kidron said. Continued inventory digestion could exert pressure on Networking revenue though the first half of fiscal 2025, he added.

"Still, growing orders demand for DC/Campus switching is an early indicator that a bottom is on the horizon," the analyst wrote. "In addition, Cisco is in the early innings in addressing a large AI opportunity, seeing improving traction in Security, and can cross-sell Splunk, all of which offer revenue upside over next couple of years," he further stated.

Rosenblatt Securities: Cisco’s product orders, excluding Splunk, were flat year-on-year, an improvement over the previous quarter's decline of 12%, Genovese said. Service Provider orders rose by 9% year-on-year, versus a 40% contraction in the previous quarter, driven by Hyper Scale customers, he added.

Management expects the excess Enterprise inventory to be "burned off" by the end of the fiscal fourth quarter, the analyst stated. "Cisco’s FY25 revenue and earnings outlook including Splunk appear quite conservative," he further wrote.

JPMorgan: "Cisco results showed the stabilization of industry demand trends, albeit at lower levels, which investors were hoping for to be able to look forward to a recovery," Chatterjee wrote in a note. The quarterly revenue results and guidance were in-line with lowered expectations, "even as the upside surprise in relation to F3Q EPS was driven by better gross margin," he added.

Cisco is likely to witness "a slow recovery in the outlook for Enterprise spending on Networking Equipment," the analyst wrote. Although management issued an optimistic revenue outlook for fiscal 2025, it shows a higher-than-expected year-on-year earnings decline, he further stated.

BofA Securities: Although Cisco Systems managed a beat due to previously lowered revenue and earnings expectations, growth is likely to accelerate in fiscal 2025, Liani said.

"The company expects to fully absorb the excess backlog by 4Q24, and its preliminary growth guidance for FY25 suggests core growth ex-Splunk at roughly 5% YoY, driven by an improved security portfolio, 3Q recovery in orders for campus and data center switching, and line of sight to $1bn of orders for Ethernet-based AI networking gear," he wrote.

KeyBanc Capital Markets: Cisco's fiscal 2025 guidance is backend loaded, due to slower-than-expected organic demand growth in the first half, Blakey said. "Further, Cisco appears to be increasing opex against the potentially large Splunk opportunity, which will pressure EBIT margins in FY25, likely lowering Street EPS," he added.

"Management reiterated its $1B FY25 AI-related order guide and noted new design wins driven mainly by backend hyperscaler orders with early traction in Enterprise, but this, too, appeared to be more 2H loaded in terms of revenue conversion in FY25 for these orders," the analyst wrote.

Needham: Cisco’s third-quarter results indicated "a stabilization in Orders with Orders flat excluding Splunk after a steep decline in the January quarter," Henderson said. He added that orders could improve in the back half of the year.

"The most notable turnaround was in the SP and Cloud vertical, where Orders declined 40% in FY2Q yet came in up 9% in FY3Q," the analyst wrote. Although the results were strong, the full-year guidance was slightly disappointing, he added.

CSCO Price Action: Shares of Cisco Systems had declined by 1.47% to $48.94 at the time of publication on Thursday.

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