Cigna earnings beat by $0.04, revenue topped estimates
On Thursday, Citi updated its stance on Cisco Systems Inc. (NASDAQ:CSCO), raising its price target to $64 from the previous $62 while reaffirming a Buy rating on the stock. The adjustment follows Cisco's recent financial performance, which included a modest earnings beat and a slight increase in the company's FY25 growth outlook.
Cisco's shares saw a decline of 3% after the results were announced, as the market reacted to the company's financial updates. Despite reporting better-than-expected AI orders and positive trends in core networking orders, investors showed concern over the unchanged AI revenue guidance and only a marginal uplift in the long-term growth forecast. Cisco's AI orders for the quarter exceeded $300 million, a notable figure considering their $1 billion target for FY25.
The performance of Cisco's cloud customers was also highlighted, with four out of six experiencing order growth exceeding 100% year over year. However, Cisco's organic Security growth showed a slowdown, dipping from 6% in the July quarter to 2%. This deceleration was attributed to budgetary challenges within Cisco's U.S. Federal business, which are expected to continue into the January quarter.
A positive aspect of Cisco's report was the improvement in gross margin (GM), which increased by 220 basis points year over year. This improvement was partly credited to the contributions from Splunk (NASDAQ:SPLK). In light of these financial details, Citi modestly raised its FY25 and FY26 earnings per share (EPS) estimates for Cisco by 1% and 2%, respectively.
Citi's analysis suggests that the mixed results from the October quarter are likely to be overshadowed by the potential benefits Cisco could reap from the expanding AI networking market and improving valuation metrics. The firm's maintained Buy rating indicates a continued positive outlook on Cisco's shares amidst these developments.
In other recent news, Cisco Systems Inc. reported a 33% year-over-year increase in enterprise orders and a robust overall performance, despite concerns regarding U.S. Federal spending. The company's Q4 2024 revenue was $13.6 billion, marking a 10% decline year-over-year, but sectors such as Security and Observability saw significant growth. Cisco's first-quarter fiscal year 2025 performance exceeded expectations, with an upward revision of the full-year 2025 revenue guidance.
Analyst firms BofA Securities, JPMorgan, Evercore ISI, Citi, and HSBC have all expressed confidence in Cisco's growth potential, with upgrades and maintained ratings. BofA Securities raised Cisco's price target to $72, while JPMorgan upgraded the stock from Neutral to Overweight.
Cisco has also launched a new AI server family and AI PODs leveraging NVIDIA (NASDAQ:NVDA) accelerated computing, and announced a significant overhaul of its partner program, backed by an $80 million investment. Additionally, the company has made a substantial investment in cloud services provider, Coreweave.
These recent developments reflect Cisco's commitment to enhancing AI infrastructure, partner support, and expanding its presence in the rapidly evolving sector.
InvestingPro Insights
Cisco Systems Inc. (NASDAQ:CSCO) continues to demonstrate its financial strength and market position, as reflected in recent InvestingPro data and tips. The company's market capitalization stands at an impressive $236.17 billion, underscoring its significant presence in the Communications Equipment industry.
InvestingPro Tips highlight Cisco's commitment to shareholder value, noting that the company has raised its dividend for 14 consecutive years. This consistent dividend growth, coupled with a current dividend yield of 2.7%, may appeal to income-focused investors. The stock's strong performance is evident in its 31.23% price total return over the past three months, aligning with Citi's positive outlook and increased price target.
While Cisco's revenue growth has slowed, with a -5.61% decline in the last twelve months, the company maintains a robust gross profit margin of 64.73%. This aligns with Citi's observation of improved gross margins, partly attributed to the Splunk acquisition. Additionally, Cisco's P/E ratio (Adjusted) of 21.11 suggests a reasonable valuation, especially considering the company's potential in the expanding AI networking market.
InvestingPro offers 11 additional tips for Cisco, providing investors with a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable in light of Cisco's recent earnings report and the market's mixed reaction to its performance.
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