Morningstar Key Values ​​for Cisco Systems

What we thought about Cisco Systems’ earnings

We maintain our fair value estimate of $50 per share for Cisco Systems CSCO as we leave our long-term guidance intact after the October quarter results. We believe Cisco is firmly back in a normal demand environment after two years of choppy results stemming from over-orders and the subsequent digestion of customer inventories. We still like the Splunk acquisition and integration, but view it as a minor factor relative to the larger networking business.

We also like Cisco’s emerging growth in AI networking infrastructure, but don’t expect it to be a massive driver. Nor do we expect Cisco to have a strong market share in AI networks. The stock looks overvalued to us after rising more than 25% since Cisco’s last earnings release in August. We believe current levels overstate the company’s long-term growth opportunity, likely due to some exuberance around the company’s exposure to AI.

October quarter sales rose 2% sequentially, but fell 6% year over year to $13.8 billion. We expect the year-over-year decline to be Cisco’s last this fiscal year, driven by backorder momentum that lasted through last year’s October quarter. We see sequential growth reflecting healthier and more stable demand. Overorders a year ago were concentrated in networks, and those sales fell more than 20% year-over-year this quarter. Security sales grew 100% year-over-year driven by the inorganic contribution of Splunk. We’re seeing 13% positive and mostly organic sequential security growth in the second full quarter with Splunk.

Cisco raised its guidance for fiscal 2025, in line with our forecast for sales growth of 4%. The midpoint January quarter sales outlook of $13.85 billion also agreed with our model and implied an 8% year-over-year increase from last year’s low demand. We believe Cisco can grow sequentially through fiscal 2025 amid demand for more normalized networks and strong momentum for security sales.