On Wednesday, Cisco Systems Inc. (NASDAQ:CSCO) stock received a favorable update from Citi, with the firm's analyst upgrading the stock from Neutral to Buy. Accompanying the upgrade is an increased price target, now set at $62.00, up from the previous $52.00.
This adjustment reflects the analyst's expectation of Cisco benefiting from growth in the Ethernet AI Total Addressable Market (TAM) and a shrinking valuation gap compared to its peers.
The analyst noted that while artificial intelligence (AI) represents a small portion of Cisco's business—approximately 2% of revenue—there is potential for a more significant contribution in the future. The optimism is partly based on the anticipation of more AI developments, which could lead to a more positive outlook for the networking equipment sector.
As a result, investors might shift their focus from semiconductors and hardware to networking equipment, potentially enhancing the group's valuation.
Citi has also revised its earnings per share (EPS) estimates for Cisco for fiscal years 2025 and 2026, increasing them by 2% and 5%, respectively. The new price target of $62.00 is based on a 16x price-to-earnings (P/E) multiple, which is still notably below the peer average of approximately 25x. This discount takes into account ongoing concerns over core market share losses, which are partially mitigated by the emerging AI opportunity.
The analyst suggests that with the expected sales trough in July-Quarter and fiscal year 2024, there is limited potential for further downside. The upcoming October-Quarter results, to be reported on November 13, are seen as a potential catalyst for the stock.
In other recent news, Cisco Systems Inc. has been on the radar with multiple developments. The company reported Q4 2024 revenue of $13.6 billion, a decline of 10% year-over-year.
Despite a decrease in product revenue, significant growth was seen in the Security and Observability sectors, surging by 81% and 41% respectively. The company's acquisition of Splunk (NASDAQ:SPLK) added $960 million to the quarter's revenue.
Cisco's transformation into a recurring revenue company was highlighted by Tigress Financial Partners, who maintained a Buy rating and increased the price target to $78. The firm anticipates this shift to enhance Return on Capital and Economic Profit.
Cisco's significant investment in cloud services provider, Coreweave, valued at $23 billion, further emphasizes the company's intent to broaden its presence in the rapidly evolving sector.
HSBC upgraded Cisco's stock from Hold to Buy, 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 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.
Additionally, there's been a notable change in the company's board of directors as Ekta Singh-Bushell will not seek re-election at the forthcoming annual stockholders meeting. Lastly, for the fiscal year 2025, Cisco's revenue is expected to fall between $55 billion and $56.2 billion. These are all recent developments within the company.
InvestingPro Insights
Cisco's recent upgrade by Citi aligns with several key metrics and insights from InvestingPro. The company's market cap of $215.82 billion USD reflects its significant position in the Communications Equipment industry, which is further supported by an InvestingPro Tip highlighting Cisco as a prominent player in this sector.
The analyst's optimism about Cisco's future earnings potential is reinforced by InvestingPro data showing a P/E Ratio (Adjusted) of 19.29 for the last twelve months, which is lower than the current P/E Ratio of 21.21. This suggests potential for valuation expansion, especially if the company capitalizes on the growing AI market as predicted.
Additionally, an InvestingPro Tip notes that 15 analysts have revised their earnings upwards for the upcoming period, aligning with Citi's increased EPS estimates for fiscal years 2025 and 2026. The company's solid financial position is further evidenced by its consistent dividend payments, with an InvestingPro Tip revealing that Cisco has raised its dividend for 14 consecutive years.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips that could provide valuable insights into Cisco's market position and future prospects.
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