'Cisco Likely Represents A Safe Place To Park Money If Concerned About A Recession, But Not A Great Place If You Are Expecting Interest Rate Cuts': Analyst

Cisco Systems, Inc CSCO stock gained in Wednesday after-hours trading after the company reported upbeat fourth-quarter earnings. The stock price maintained the upward trajectory on Thursday.

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

Cisco reported fiscal fourth-quarter revenue of $13.64 billion, exceeding the analyst consensus estimate of $13.537 billion. The company reported adjusted EPS of $0.87, topping analyst consensus estimates of $0.85.

Needham analyst Alex Henderson reiterated Cisco with a Hold.

Oppenheimer analyst Ittai Kidron maintained an Outperform on Cisco with a price target of $58.

Piper Sandler analyst James E. Fish reiterated a Neutral with a price target of $52.

BofA Securities analyst Tal Liani maintained a Buy on Cisco with a price target of $60.

Needham: Henderson said that Cisco likely represents a safe place to park money for investors concerned about a recession but not a better place for investors expecting interest rate cuts.

The analyst said Cisco is showing positive order growth for the second consecutive quarter, but this is on depressed numbers. He also noted Cisco is losing share to Arista, Juniper, and Extreme in Networking, Palo Alto, Zscaler, Crowdstrike, and others in Security, and Zoom and Microsoft in Collaboration.

Henderson projected first-quarter revenue of $13.8 billion and EPS of $0.87.

Oppenheimer: Cisco reported a solid fourth quarter, beating estimates behind waning inventory digestion headwinds, accelerating organic revenue growth for Security, and a rebound in order growth.  

The analyst is optimistic about opportunities in SaaS and Cloud, including Security and collaboration, which will drive more recurring revenue.

The analyst noted an attractive setup for fiscal 2025 and an outlook (which calls for 3% year-on-year) as beatable, given continued improvement in Enterprise order growth, a large opportunity in AI infrastructure, sustained momentum in Security behind SASE, XDR, and a rebound in Network Security.

Kidron projected first-quarter revenue of $13.7 billion and EPS of $0.87.

Piper Sandler: Fish flagged the sustainability of management’s conviction that the demand environment will return to normal and Cisco’s continued shift of investments towards AI, Cloud, and Security, which is collapsing its product structure given the macro, cost savings potential to margins, Splunk’s impact, and the organizational changes.

The target multiple remains a discount to large-cap peers (27x), which Fish noted as justified given Cisco’s lower growth. He increased the multiple slightly to reflect the better AI order trends and fiscal 2025 guidance than expected.

Fish projected first-quarter revenue of $13.8 billion and EPS of $0.88.

BofA Securities: The rerating is based on Liani’s belief that Networking should see renewed growth on the normalization of Campus switching demand. Ethernet-based AI buildouts and new product announcements should support the re-acceleration of its Security business. The analyst noted Splunk synergies supporting growth initiatives in Security and Observability. Additionally, Cisco’s shift to recurring and subscription revenue is positive and helps support the stock, with 50% of revenue now recurring, Liani said.

With the stock underperforming NASDAQ by 24% year-to-date and given Liani’s expectations for growth and margin improvements in fiscal 2025, the analyst noted that Cisco represents an attractive opportunity. The price target is based on roughly 14.5x Enterprise Value to Free Cash Flow using Fish’s calendar year 2025 estimate, which aligns with tech peers at 9x-20x (appropriate given Cisco’s stability and high 3.0%+ dividend yield).

Liani projected first-quarter revenue of $13.8 billion and EPS of $0.87.

Price Action: CSCO shares are trading higher by 7.20% to $48.72 at last check Thursday.

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