Cisco's Outlook And Sales Dip Concerns - This Analyst Downgrades Stock Ahead Of Q1

Raymond James analyst Simon Leopold downgraded Cisco Systems Inc CSCO to Market Perform from Outperform.

The analyst expects declining campus application sales (likely accounting for about a third of sales decline in CY24) to contribute to an overall sales decline in the year (-1.7%) and see this market drop by a mid-to-high single-digit rate.

Also, although the pending $28 billion Splunk acquisition makes strategic sense, it reduces options for Cisco and lacks differentiation amid rising competitive pressures, writes the analyst. 

Related: 80% Of The Acquisitions Fail, Is Cisco's Acquisition Of Splunk A Leap Forward Or A Misstep?

The analyst anticipates Cisco to guide for a worse-than-seasonal sales decline in its January quarter as the customers absorb prior purchases and a weak macro environment.

Leopold sees Cisco's guidance for growth in FY24 as achievable on backlog reduction, projected to be normalized in H1 FY24.

The analyst sees AI as an emerging tailwind and drives the company's multi-year growth but expects IT spending to be restrained amid a sluggish macroeconomic environment and higher interest rates. 

Overall, the analyst projects an FCF of around $33 billion through FY25, a share buyback worth $9.6 billion, and a dividend payment of $12 billion.

The analyst's estimates for Q1 sales and adjusted EPS remain at $14.66 billion and $1.03, respectively. 

Leopold revised sales and EPS to $57.8 billion (from $58.2 billion) and $4.07 (from $4.08) for FY24 and $58.0 billion (from $58.4 billion) and $4.16 (from $4.12) for FY25.

Also Read: Cisco Q4 Results: Shares Rise After Earnings And Sales Beat

Price Action: CSCO shares are trading lower by 0.11% at $51.51 on the last check Monday.