Cisco's Long-Term Prospects Shine with AI and Security, Analysts Stay Optimistic Despite Challenges

Oppenheimer analyst Ittai Kidron reiterated an Outperform rating on Cisco Systems, Inc CSCO with a price target of $54.

The analyst stated that Cisco reported a mixed second quarter, beating estimates but guiding below street on third-quarter revenue. 

As per Kidron, the company continues to deal with a slower pace of inventory digestion, and management now expects pressures to persist through the end of fiscal 2024. 

With an uptick in macro pressure and continued weakness for Service Providers, management reset the fiscal 2024 revenue outlook. 

Kidron noted these challenges as temporary and remained positive on the long-term outlook. 

Cisco is in the early innings of addressing an ample AI opportunity, which will likely contribute to revenue in fiscal 2025, coupled with new cross-sell opportunities in Security and Observability from the Splunk acquisition, which left the analyst optimistic about the shares. 

Kidron projects third-quarter revenue and EPS of $12.2 billion (prior $12.9 billion) and $0.85 (prior $0.90).

JMP analyst Erik Suppiger maintained a Market Perform rating on Cisco.

The analyst is concerned that Cisco struggles to gain a share in several key growth infrastructure markets but is encouraged that the company has recently gained momentum in some select markets, such as AI networking. 

Suppiger projects third-quarter revenue and EPS of $12.2 billion and $0.86.

William Blair analyst Sebastien Naji had a Market Perform rating on the stock.

Cisco reported modest beats in the second quarter, though

it brought down guidance for fiscal 2024 for a second time as a challenging networking demand environment continues to serve as a headwind to growth, the analyst said

Naji projects third-quarter revenue and EPS of $12.1 billion and $0.85.

Needham analyst Alex Henderson reiterated a Hold rating.

Based on Cisco’s fiscal second-half guide, Cisco is running below the fiscal 2019 quarterly run rate. The comparisons remain tough into the October quarter, as per the analyst. 

The rate of decline in Product Sales, assuming flat Services, in the third quarter is roughly 20%-24%, with the Networking business down 25%-30% in both April and the typically seasonally strongest quarter of the year, Cisco’s fourth quarter ending July. 

Cisco called out Cloud, Service Provider, Cable, and Enterprise weaknesses. 

The analyst said the challenge is to forecast the fiscal 2025 outlook and the degree to which the second half of fiscal 2024 guidance understates the longer-term normalized demand.

Henderson projects third-quarter revenue and EPS of $12.2 billion and $0.85.

KeyBanc analyst Thomas Blakey maintained a Sector Weight rating.

Cisco shares trade at a slight discount to the 3-year average P/E on his newly lowered calendar year 2024E EPS, which is warranted given the relative lack of visibility, the analyst stated.

Blakey projects third-quarter revenue and EPS of $12.2 billion (prior $12.9 billion) and $0.86 (prior $0.88).

Goldman Sachs analyst Michael Ng had a Neutral rating with a price target of $50. Ng projects third-quarter revenue and EPS of $12.3 billion and $0.86.

JP Morgan analyst Samik Chatterjee projects third-quarter revenue and EPS of $12.5 billion and $0.87.

Price Action: CSCO shares closed down 2.43% at $49.06 on Thursday.

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