Cisco Systems Faces Market Challenges, Yet Analysts Remain Optimistic
San Jose, California-based Cisco Systems, Inc. (CSCO) is an IP-based networking company offering products and services to service providers, companies, commercial users, and individuals. With a market cap of $221.8 billion, Cisco’s operations span the Americas, Indo-Pacific, Europe, the Middle East, and Africa.
Performance Lags Behind Competitors
CSCO stock has underperformed the broader market over the past year. The stock has gained 8.4% on a year-to-date (YTD) basis, lagging behind the S&P 500 Index’s ($SPX) 19.6% gains in 2024. Over the past 52 weeks, CSCO is up 6.2% compared to the SPX’s 36.9% returns during the same time frame.
Looking at specific sectors, Cisco has also underperformed the Technology Select Sector SPDR Fund’s (XLK) 15.5% gains on a YTD basis and 36.5% returns over the past 52 weeks.
Shifts in Demand Weigh on Revenue
Cisco has encountered obstacles recently due to the shift to cloud-based solutions, which has pressured its core networking segment, including switches and routers. As large enterprises increasingly embrace cloud technology, demand for traditional networking gear has softened.
Despite these challenges, CSCO spiked 6.8% following its fiscal 2024 earnings report on August 14 and experienced positive movement for four consecutive days. Although the company reported a 5.6% decline in annual revenue to $53.8 billion, stemming from slower product sales, Q4 results presented a more encouraging outlook. Total revenue of $13.6 billion exceeded forecasts by 90 basis points, and the adjusted EPS at $0.71 surpassed analyst expectations by 1.4%.
For the current fiscal year ending July 2025, analysts project that Cisco’s adjusted EPS will drop by 7.4% year-over-year to $2.89. However, the company boasts a strong earnings surprise track record, having exceeded Wall Street’s earnings estimates in each of the past four quarters.
Analyst Ratings Remain Encouraging
Among the 21 analysts covering the stock, the consensus rating is a “Moderate Buy.” This includes six recommending a “Strong Buy,” two advising a “Moderate Buy,” and 13 suggesting a “Hold” rating.
This configuration has remained mostly stable over recent months.
Upgraded Forecasts Fuel Positive Sentiment
On October 16, Citigroup (C) analyst Atif Malik upgraded Cisco’s rating from “Neutral” to “Buy” and increased the price target to $62. Malik pointed out significant potential in the emerging field of ethernet-based AI. Cisco’s existing ethernet switches, previously used for traditional networking, could facilitate connections between graphics processing units used in AI applications and other hardware. He believes a shift away from semiconductors toward AI networking services could provide additional advantages for Cisco.
While CSCO’s mean price target of $56.53 indicates a modest 3.2% premium to current price levels, the Street-high target of $78 suggests a promising upside of 42.4%.
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On the date of publication, Aditya Sarawgi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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