Company Reports

We trim our fair value estimate for wide-moat Cisco Systems to $50 per share, from $53, as weak guidance for the rest of fiscal 2024 leads us to reduce our short-term forecasts. Cisco continues to see lower demand as its large customers work through inventory stockpiles following two years of overordering. While we’d previously seen management’s expectations for a short-lived correction as rosy, new fiscal 2024 guidance is still well below our prior forecast. We remain fans of Cisco’s long-term position, with heady profits, cash flow, and a good dividend. The short term, however, looks weak. With a market selloff after the release commensurate with our valuation cut, we continue to see shares as close to fair value.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

We trimmed our fair value estimate for wide-moat Cisco Systems to $53 per share, from $56 after the firm reported impressive fiscal first-quarter results but provided poor guidance for the rest of the fiscal year. Cisco’s January-quarter guidance implies a 13% sequential sales decline, and management lowered their outlook for fiscal 2024 sales by roughly 5%. Management attributed the lowered expectations to large enterprises working to implement Cisco equipment previously delivered before resuming orders. We now see fiscal 2024 as more of a correction year. Tremendous fiscal 2023 results were driven by backlog reductions buoying sales above end demand that looks like it was weaker than we’d previously believed.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

We maintain our $56 fair value estimate for wide-moat Cisco Systems as the company announced an all-cash deal to acquire Splunk for $157 per share, or $28 billion in equity value. Cisco’s shares fell about 4% on the news, but we still view shares as fairly valued.

We maintain our $56 fair value estimate for shares of wide-moat Cisco Systems after it topped its fiscal fourth-quarter guidance and provided an outlook for modest growth in fiscal 2024. Underlying demand for Cisco’s core networking products is coming down to earth from record levels seen during fiscal 2022, but remains at a healthy level, in our view. A large order backlog helped Cisco to achieve supernormal growth in fiscal 2023, but we think fundamental demand can fuel stable growth into the long term after the backlog returns to normal levels in fiscal 2024. We continue to see Cisco as a dominant force in enterprise networking, with highly sticky solutions that retain customers and underpin our wide moat rating. We see shares as fairly valued.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

We maintain our $56 fair value estimate for wide-moat Cisco Systems shares after it reported strong fiscal third-quarter results. Sales and fiscal fourth-quarter guidance beat our expectations, but were tempered by poor order growth in the quarter that actually sent shares down roughly 4% after the release. Orders, which reflect current demand, are being negatively affected by a soft macroeconomic environment that leads to slower customer spending on Cisco equipment. We aren’t overly concerned with poor order growth in the short term, given Cisco has built a large backlog of orders over the past two years that allows it to post strong results ahead of underlying orders. We expect it to take roughly a year to work through the rest of its excess backlog, which gives the firm time for demand to normalize. Looking past rocky short-term demand, we continue to see Cisco benefitting from healthy long-term networking spending and offering sticky solutions. We think long-term investors should see an attractive entry point at current levels.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

We raise our fair value estimate for Cisco Systems to $56 per share from $54, following a strong fiscal second quarter and terrific guidance for the remainder of the year. We view Cisco’s impressive guidance as reflecting both an improving supply environment and durably strong demand. Enterprise networking spending appears resilient to us against a backdrop of softening end markets elsewhere. We believe strong results so far in fiscal 2023 and strong guidance for the future, lends credence to our long-term view that Cisco remains the pre-eminent heavyweight in enterprise networking. We see its moaty, holistic portfolio eliciting high switching costs for customers and prompting upselling, which could even allow it to claw back market share from competitors. Shares initially jumped 7% afterhours in response to guidance, but gave back some gains as we think investors grew skittish of the durability of growth. Though we see backlog drawdown as contributing to near-term growth, we view networking demand as strong into the long term. With shares trading around $50, we still see value for long-term investors.

We maintain our $54 fair value estimate for wide-moat Cisco Systems after it reported fiscal first-quarter results modestly above our expectations. Cisco also raised its fiscal year top-line guidance slightly. We see strong fiscal 2023 performance for Cisco as a function of improving supply and demand dynamics: demand, while normalizing, remains strong for enterprise software and networking equipment, and supply is improving. We expect demand to stay healthy in fiscal 2023, and Cisco’s backlog, growing recurring revenue base, and remaining performance obligations give us confidence in fiscal 2023 results. We continue to view shares as undervalued.

We upgrade our economic moat rating for Cisco Systems to wide, from narrow, upon renewed confidence that the firm’s leadership and economic return profile will prove durable in an evolving networking market. We maintain our $54 fair value estimate, stable moat trend rating, medium uncertainty rating, and exemplary capital allocation rating.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

We maintain our $54 fair value estimate for Cisco Systems after the firm reported positive fiscal fourth-quarter results. Cisco’s top line topped quarterly guidance, and its initial guide for 2023 met our expectations. Demand for Cisco’s portfolio remains strong, with double-digit sequential order growth for commercial, enterprise, and public sector customers. Supply remains constrained, but shows signs of easing. We are positive on Cisco’s continued business model transition toward a greater mix of software and a subscription model. Annual recurring revenue continued to grow steadily, and subscription-based products like the Catalyst 9000 family and ThousandEyes performed well. Shares popped 5% following results and guidance that were above Factset consensus, and we now see shares as only modestly undervalued.

The networking equipment behemoth Cisco continues to execute on its strategic focus of increasing recurring revenue via selling software and services to supplement its hardware products. Software and services were more than half of fiscal 2021 revenue, up from 43% in fiscal 2017. In our view, Cisco embracing software from hardware disaggregation, and even selling networking chips, can help keep demand for its solutions high although some customers rely on cloud-based resources or generic hardware. We assess narrow-moat Cisco's plan as the correct direction for maintainable growth and believe the firm's strategic shifts through organic developments and acquisitions, keep Cisco as mainstay in today's networks.

The networking equipment behemoth Cisco continues to execute on its strategic focus of increasing recurring revenue via selling software and services to supplement its hardware products. Software and services were more than half of fiscal 2021 revenue, up from 43% in fiscal 2017. In our view, Cisco embracing software from hardware disaggregation, and even selling networking chips, can help keep demand for its solutions high although some customers rely on cloud-based resources or generic hardware. We assess narrow-moat Cisco's plan as the correct direction for maintainable growth and believe the firm's strategic shifts through organic developments and acquisitions, keep Cisco as mainstay in today's networks.

The networking equipment behemoth Cisco continues to execute on its strategic focus of increasing recurring revenue via selling software and services to supplement its hardware products. Software and services were more than half of fiscal 2020 revenue, up from 43% in fiscal 2017. In our view, Cisco embracing software from hardware disaggregation, and even selling networking chips, can help keep demand for its solutions high although some customers rely on cloud-based resources or generic hardware. We assess Cisco's plan as the correct direction for maintainable growth and believe the firm's strategic shifts through organic developments and acquisitions, keep Cisco as mainstay in today's networks.

We are lowering our fair value estimate for narrow-moat Cisco Systems to $54 per share from $56 after its third-quarter results and outlook caused us to temper our outlook for growth. Cisco grossly missed our growth expectations in the third quarter, and its fourth quarter outlook was appreciably lower than we anticipated. Its shares were pushed down more than 10% after reporting due to the soft quarter and outlook. We view shares as attractive for long-term investors as we believe supply chain headwinds will eventually dissipate, while Cisco will remain an essential provider of IT necessities, a resilient operator, and a shareholder-focused firm.

We are raising our fair value estimate for narrow-moat Cisco Systems to $56 per share from $54 after its second-quarter revenue growth and earnings came in slightly higher than our expectations. Our increase is driven by expecting a marginally higher long-term growth profile as Cisco transitions toward more software and subscription sales. Cisco's shares, which rose slightly in afterhours trading, are fairly valued, in our view. We think Cisco is aptly positioned to benefit from organizations requiring networking and security upgrades to facilitate hybrid working and cloud architectures, but expect normalized demand to eventually slow the robust revenue growth currently being experienced. Cisco continues to be a firm we consider shareholder-centric and a solid operator, and we view its decision to up its quarterly dividend and greatly increase its buyback authorization positively.

The networking equipment behemoth Cisco continues to execute on its strategic focus of increasing recurring revenue via selling software and services to supplement its hardware products. Software and services were more than half of fiscal 2020 revenue, up from 43% in fiscal 2017. In our view, Cisco embracing software from hardware disaggregation, and even selling networking chips, can help keep demand for its solutions high although some customers rely on cloud-based resources or generic hardware. We assess Cisco's plan as the correct direction for sustainable growth and believe the firm's strategic shifts through organic developments and acquisitions, keep Cisco as mainstay in today's networks.