On Thursday, Evercore ISI maintained its Outperform rating on Cisco (NASDAQ:CSCO) stock with a steady price target of $55.00. The firm's assessment followed Cisco's announcement of a better-than-anticipated quarterly report, which exceeded expectations on both revenue and earnings, alongside a significant gross margin beat.
The company's guidance for the upcoming July quarter appeared to align with expectations, although the integration of recently acquired Splunk (NASDAQ:SPLK) posed challenges for direct comparisons to consensus figures.
Cisco's order numbers remained a highlight, showing stability and marking an improvement from the 12% decline seen in the previous quarter. This stability is seen as a key indicator of Cisco's potential for growth, especially if the company can demonstrate positive order growth in the July quarter.
Initial commentary from Cisco regarding fiscal year 2025 suggested a more modest revenue growth projection of low-to-mid single digits, which is slightly below the consensus estimate of 4%. This conservative outlook is attributed to the expectation of flat to slightly increased revenue when excluding Splunk's impact.
Despite the conservative revenue guide for FY25, Cisco's earnings per share (EPS) guidance of approximately $3.50 fell short of the anticipated $3.70, largely due to the dilutive effects of the Splunk acquisition, increased interest expenses, and lower operating margins than previously expected.
Nonetheless, Cisco remains optimistic about the opportunities in artificial intelligence (AI), reaffirming their expectation to achieve $1 billion in AI orders in FY25, with potential for further upside.
The report concluded by highlighting that the improved order growth was a significant positive takeaway from the quarter, which could provide a basis for optimism among investors.
The focus of future discussions is expected to revolve around the FY25 guidance and whether it may indeed be conservative, particularly in terms of growth and operating margins. Given the strong trajectory of orders, there is a possibility for better-than-expected performance in FY25 and the years to follow.
InvestingPro Insights
As Cisco (NASDAQ:CSCO) navigates through its recent acquisition of Splunk and sets its sights on growth in the AI sector, investors can gain further clarity by considering key financial metrics and expert analysis provided by InvestingPro. With a market capitalization of $201.12 billion and a trailing P/E ratio standing at 14.3, Cisco reflects a valuation that is attuned to its near-term earnings growth. The company's commitment to shareholder returns is evident through a robust dividend yield of 3.22%, complemented by a consistent track record of dividend growth over the past 14 years.
InvestingPro Tips indicate that Cisco's balance sheet strength is underscored by holding more cash than debt, providing financial flexibility. Additionally, the firm's low price volatility makes it an appealing choice for investors seeking stability. With 5 analysts revising their earnings downwards for the upcoming period, it's crucial for investors to monitor the integration of Splunk and its impact on Cisco's financials. For those seeking a deeper dive into Cisco's financial health and future prospects, there are 9 additional InvestingPro Tips available, which can be accessed with a special offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
The insights gleaned from these metrics and expert tips not only align with the article's discussion on Cisco's future growth potential and the effects of the Splunk acquisition but also provide a broader context for investors to assess the company's financial stability and market position.
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