On Monday, Tigress Financial Partners maintained a Buy rating on Cisco (NASDAQ:CSCO) and increased the price target to $78 from the previous target. The firm cited Cisco's ongoing shift towards smart AI-driven networks and enhanced cybersecurity integration as catalysts for reversing recent revenue declines and driving long-term shareholder value creation.
Cisco reported a 10% year-over-year decline in Q4 2024 revenue, amounting to $13.6 billion. Despite a 15% decrease in product revenue, the company saw significant growth in specific areas: Security revenue surged by 81%, Observability by 41%, while Collaboration revenue remained flat. Networking revenue, however, fell by 28%. Service revenue presented a brighter spot with a 6% increase.
The company's acquisition of Splunk (NASDAQ:SPLK) contributed $960 million to the quarter's revenue. Geographically, Americas and EMEA revenues both decreased by 11%, and APJC revenue dropped by 6%. Nevertheless, product orders rose by 14%. Subscription revenue hit $27.4 billion, accounting for 51% of the total revenue, with the inclusion of Splunk's figures. The total annual recurring revenue (ARR) climbed by 22% to $29.6 billion, and total software revenue grew by 9% to $18.4 billion. Of this, software subscription revenue, which increased by 15%, constituted 89%.
Cisco has been focusing on AI-enriched networking, security, and observability solutions across its portfolio. The company introduced its Nexus HyperFabric AI clusters, developed in partnership with NVIDIA (NASDAQ:NVDA), and new AI-native digital experience assurance innovations from Cisco ThousandEyes. These advancements aim to provide comprehensive network management and security.
The firm's analysis suggests that over the next two years, a majority of IT leaders plan to deploy AI-enabled predictive network automation and tools for end-to-end network visibility. Cisco's evolution into a company with recurring revenue from software and services that support hardware sales is expected to further enhance Return on Capital (ROC) and Economic Profit, offering significant upside potential. The new price target of $78 implies a total return, including dividends, of over 45% from current levels.
In other recent news, Cisco Systems Inc (NASDAQ:CSCO). announced a major shift in its board of directors as Ekta Singh-Bushell will not seek re-election at the forthcoming annual stockholders meeting. This development comes alongside Cisco's significant investment in cloud services provider, Coreweave, thereby valuing the company at $23 billion.
This commitment underscores Cisco's intent to broaden its presence in the rapidly evolving cloud services sector. However, the exact financial details and the stake Cisco will acquire in Coreweave remain undisclosed.
In terms of financial performance, Cisco reported strong results for the fourth quarter and fiscal year 2024, with Q4 revenue reaching $13.6 billion and full-year revenue totaling $53.8 billion. The company's projections for Q1 revenue range between $13.65 billion and $13.85 billion, while fiscal year 2025 revenue is expected to fall between $55 billion and $56.2 billion.
Cisco's stock has been upgraded from Hold to Buy by HSBC, reflecting positive expectations for the company's future performance. The firm anticipates a compound annual growth rate of 11.6% in Cisco's non-GAAP earnings per share from calendar year 2024 through 2027. Other analyst firms, including KeyBanc, BofA Securities, and Piper Sandler maintained their ratings, noting positive trends in the company's orders and advancements in artificial intelligence and security business.
InvestingPro Insights
Cisco's strategic shift towards AI-driven networks and enhanced cybersecurity, as highlighted in the article, is reflected in recent InvestingPro data and tips. Despite the reported revenue decline, Cisco's market cap stands at a robust $216.3 billion, underscoring its significant industry presence. An InvestingPro Tip notes that Cisco is a "Prominent player in the Communications Equipment industry," aligning with its focus on advanced networking solutions.
The company's financial health appears solid, with an InvestingPro Tip indicating that Cisco "Operates with a moderate level of debt." This financial stability supports its ongoing investments in AI and cybersecurity initiatives. Additionally, Cisco's commitment to shareholder value is evident in another InvestingPro Tip, which states that the company "Has raised its dividend for 14 consecutive years," with a current dividend yield of 2.95%.
Investors should note that Cisco is "Trading near 52-week high" and has shown a "Strong return over the last three months," with a 15.37% price total return in that period. These metrics suggest market confidence in Cisco's strategic direction and potential for future growth.
For readers interested in a deeper analysis, InvestingPro offers 11 additional tips for Cisco, providing a comprehensive view of the company's financial health and market position.
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