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Investing.com -- HSBC on Friday downgraded Cisco Systems Inc (NASDAQ:CSCO) to Hold from Buy on elevated valuation and slowing business momentum, and cut its price target to $69 from $73.
The bank also lowered its adjusted earnings per share (EPS) estimates for fiscal years 2026 (FY26) to 2028 by around 7% to 14% to reflect a weaker-than-expected outlook.
Cisco’s fourth-quarter fiscal 2025 results and fiscal 2026 guidance were in line with consensus but came in below HSBC’s estimates.
Revenue rose 7.6% year-on-year to $14.67 billion, matching both HSBC and consensus expectations.
Non-GAAP operating margin was 34.3%, up 1.73 percentage points from a year earlier, but below HSBC’s forecast of 35.3% and in line with consensus.
Non-GAAP EPS increased 13.8% to $0.99, also in line with estimates.
The company’s networking segment showed improvement, with revenue growth accelerating from a 23.5% decline in the first quarter to a 12.2% increase in the fourth.
However, HSBC analysts note that Cisco’s fiscal 2026 revenue guidance of 5% growth, combined with slowing growth in remaining performance obligations and backlog, suggests “the restocking effect may be coming to an end sooner we had expected.”
Although Cisco reported over $2 billion in AI infrastructure orders in fiscal 2025, the strength “seems to be getting offset by weakness elsewhere.”
In security, revenue grew 9.2% in the quarter and orders rose in the mid-single digits, with double-digit growth excluding the U.S. federal market.
Still, HSBC cut its long-term revenue CAGR estimate for the segment to 8% from around 10%, saying overall growth is “disappointing” despite good cross-selling traction from the Splunk acquisition.
Cisco shares have risen 42% since August 2024, outperforming the Nasdaq by 19 percentage points, and “appear fairly valued," analysts said.
The stock trades at 17.2 times estimated 2026 adjusted earnings, in line with other slow-growth companies under the bank’s coverage.
The new price target is based on a 17.5 times multiple applied to HSBC’s next 12-month non-GAAP EPS estimate of $3.93, down from $4.16. The target implies a 2% downside.