HSBC has upgraded Cisco Systems Inc. (NASDAQ: NASDAQ:CSCO) stock from Hold to Buy, significantly raising the price target to $58 from the previous $46 as the firm anticipates a compound annual growth rate (CAGR) of 11.6% in Cisco's non-GAAP earnings per share (EPS) from calendar year 2024 through 2027.
HSBC's forecast for fiscal year 2025 expects non-GAAP EPS to be $3.86, surpassing both the company's guidance of $3.55 and the consensus estimate of $3.57.
The analyst from HSBC predicts that Cisco's networking revenue will experience double-digit year-over-year growth for the final nine months of fiscal year 2025, following a low base.
However, growth in the first quarter of FY25 is projected to be weak at -20% year-over-year due to a difficult comparison with the first quarter of FY24, which benefited from a high order backlog. The recent downturn in the networking market, attributed to customer destocking, is thought to be ending, with sector demand showing signs of improvement.
In addition to networking, Cisco's security and collaboration segments are expected to grow organically by approximately 6% and 12%, respectively, in FY25, aligning with recent trends.
These segments are likely to report even higher growth rates of around 44% and 48.5% due to the prior acquisition of Splunk (NASDAQ:SPLK). Despite the company's plan to lay off 7% of its workforce, HSBC is conservatively estimating a 6.9% increase in non-GAAP costs for FY25, compared to a decrease of 0.8% in FY24. Cisco aims to balance the layoffs by hiring in lower-cost regions and in areas of high potential.
In other recent news, Cisco Systems Inc. reported a successful fourth fiscal quarter of 2024, with revenues reaching $13.6 billion and a 20-year high gross margin of 67.5%. The company achieved a 14% expansion in product orders, driven by advancements in artificial intelligence (AI), security, and webscale sectors.
Meanwhile, several analyst firms have maintained their ratings on Cisco's stock. KeyBanc maintains a Sector Weight rating, acknowledging the positive order rates and developments in security and webscale sectors.
BofA Securities maintains a Buy rating, highlighting a 6% increase in product orders and anticipated growth in the fiscal year 2025. Piper Sandler retained a Neutral rating, recognizing Cisco's strategic shifts towards AI and cloud computing. Rosenblatt, while keeping a Neutral rating, raised the price target on Cisco shares to $58.00, acknowledging the company's recent performance.
For the fiscal year 2025, Cisco's guidance aligns with Wall Street's expectations for revenue and earnings per share, despite a year-over-year decline. The company's projections for Q1 revenue range between $13.65 billion and $13.85 billion, and fiscal year 2025 revenue is expected to be between $55 billion and $56.2 billion.
InvestingPro Insights
HSBC's upgrade of Cisco Systems Inc. (NASDAQ:CSCO) to a Buy rating comes at a time when the company shows promising financial stability and shareholder value initiatives. According to InvestingPro data, Cisco boasts a market capitalization of $195.52 billion, underlining its significant presence in the industry. The company's P/E ratio stands at 17.89, reflecting a valuation that investors may find attractive given its consistent performance.
InvestingPro Tips highlight that Cisco has not only raised its dividend for 14 consecutive years but also has been actively repurchasing shares, signaling management's confidence in the company's financial health. Moreover, this strategy aligns with HSBC's optimistic growth projections for Cisco's non-GAAP EPS. With 14 analysts revising their earnings upwards for the upcoming period, the sentiment around Cisco's future profitability appears to be positive. The company's commitment to maintaining dividend payments further adds to its appeal for income-focused investors.
Investors interested in Cisco's financials and future prospects can find additional insights and tips on InvestingPro, with a total of 9 tips available for those looking to delve deeper into the company's performance and strategies.
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