On Thursday, KeyBanc maintained a Sector Weight rating on Cisco Systems Inc (NASDAQ:CSCO) after the company reported a solid fourth fiscal quarter of 2024 and provided optimistic insights about its orders, advancements in artificial intelligence (AI), and security business.
Cisco's product orders expanded by 14% year-over-year, or 6% excluding contributions from Splunk (NASDAQ:SPLK). This growth represents a significant quarterly increase, with management indicating a broad positive trend in order patterns and indicating that inventory issues are largely resolved.
The company's security orders also showed strength, driving nine-figure deals in the fourth fiscal quarter and showing promise for the fiscal year 2025. Cisco's strategic positioning suggests it is becoming a consolidator in the networking and security sectors, akin to other major players like Microsoft (NASDAQ:MSFT) and Palo Alto Networks (NASDAQ:PANW).
In the realm of AI, Cisco reported recognizing $1 billion in orders to date and anticipates the same amount for the fiscal year 2025, aligning with previous forecasts. Positive performance was noted in webscale orders, which saw double-digit growth in July. The company also highlighted its success in securing 11 design wins, including white box solutions, which appeal to large-scale buyers for their comprehensive system-based offerings.
Cisco announced a reduction in force (RIF) of 7%, which is projected to save over $1 billion. The savings are expected to be reinvested in key areas such as AI, security, cloud services, and its Silicon One initiative, as well as in transitioning to geographies with lower operational costs.
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. This outlook comes amidst a backdrop of a recovering order cycle and the anticipated cost savings from the workforce reduction. Cisco's stock is currently trading at 14 times the updated calendar year 2024 forecast, consistent with the three-year historical average for the next twelve months.
Despite the positive developments in order rates, security, and webscale sectors, KeyBanc remains cautious about expanding multiples due to execution risks and potential shifts in core networking market share, which supports the firm's decision to maintain the Sector Weight rating on Cisco shares.
In other recent news, Cisco Systems Inc. has been the subject of several analyst actions. BofA Securities maintained a Buy rating, emphasizing Cisco's better-than-expected fourth-quarter revenue despite a year-over-year decline.
The firm noted a 6% increase in product orders and anticipated growth and margin enhancements in the fiscal year 2025. Piper Sandler retained a Neutral rating, recognizing Cisco's strategic shifts towards AI, cloud computing, and security. Rosenblatt, while keeping a Neutral rating, raised the price target on Cisco shares to $58.00, acknowledging the company's recent performance.
Cisco reported impressive Q4 and fiscal year 2024 results, with revenue reaching $13.6 billion and $53.8 billion, respectively. The company achieved a 20-year high gross margin of 67.5%. Additionally, Cisco announced a restructuring plan potentially affecting 7% of its global workforce, focusing on AI, cloud, and cybersecurity sectors.
Cisco'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. In line with these recent developments, the company's Annual Recurring Revenue (ARR) for Q4 stood at $29.6 billion, a 22% increase year-over-year.
InvestingPro Insights
As Cisco Systems Inc (NASDAQ:CSCO) garners attention with its solid performance and strategic initiatives, insights from InvestingPro suggest a nuanced view of the company's financial health and market position. With a market capitalization of $195.72 billion and a P/E ratio standing at 19.05, the company showcases a substantial valuation in the tech sector. Notably, Cisco has demonstrated a commitment to shareholder returns, having raised its dividend for 13 consecutive years, a testament to its financial stability and management's confidence in the company's cash flow generation capabilities. Furthermore, the company's stock is characterized by low price volatility, which may appeal to investors seeking a more stable equity investment.
InvestingPro Tips highlight that while Cisco operates with a moderate level of debt, its short-term obligations currently exceed its liquid assets, which could warrant attention regarding its short-term financial agility. Additionally, analysts predict profitability for the company this year, reinforcing the positive outlook shared in the recent earnings report. For investors seeking more detailed analysis, there are 8 additional InvestingPro Tips available, which can be found at https://www.investing.com/pro/CSCO.
Overall, Cisco's financial metrics and market performance, coupled with the InvestingPro Tips, present a picture of a company with a strong dividend history and a stable stock, yet one that requires careful consideration of its valuation and liquidity position.
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