Here’s what Wall Street experts are saying about Cisco ahead of earnings

Cisco (CSCO) is scheduled to report results of its fiscal third quarter after the market closes on May 15 with a conference call scheduled for 4:30 pm ET. What to watch for:

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GUIDANCE: Along with its last report, Cisco guided for Q3 adjusted earnings per share of 84c-86c on revenue of $12.1B-$12.3B. At the time, analysts were expecting the company to report Q3 EPS of 92c on revenue of $13.09B, but those figures have since fallen to 82c and $12.53B, respectively. Additionally, Cisco also cut its FY24 adjusted EPS and revenue guidance.

RESTRUCTURING: Also in its last report, Cisco announced a restructuring plan in order to “realign the organization and enable further investment in key priority areas.” This restructuring plan will impact approximately 5% of Cisco’s global workforce. Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $800M, consisting of severance and other one-time termination benefits and other costs. These charges are primarily cash-based. Cisco expects to take the majority of these actions in the third quarter of fiscal 2024 and recognize approximately $500M of these charges. Cisco expects approximately $150M of these charges to be recognized in the fourth quarter of FY24, and the remaining amount of these charges primarily through the first half of FY25.

BNP UPGRADE: Earlier this week, Exane BNP Paribas upgraded Cisco to Neutral from Underperform with a $50 price target. The analyst says consensus estimate risk is now small following the closing of Splunk deal. The firm sees the acquisition as 1% and 3% accretive in fiscal 2025 and 2026, respectively. However, the analyst is not turning more positive on Cisco shares at this stage citing limited demand catalysts from the company’s core business.

JPMORAN DOWNGRADE: Conversely, JPMorgan analyst Samik Chatterjee last month downgraded Cisco to Neutral from Overweight with a price target of $53, down from $62, after resuming coverage of the shares following a period of restriction. The analyst sees a favorable near-term setup with moderating incremental headwinds in the networking market and a discounted relative valuation in the context of the re-rating of the group. However, the firm believes Cisco’s medium-term outlook “remains muted” with its expectations for 5% earnings growth annually through fiscal 2027.

BOFA: In mid-April, BofA analysts added Cisco Systems, Goldman Sachs (GS) and S&P Global (SPGI) to the firm’s “US 1 List,” which is intended to represent a collection of the best investment ideas that are drawn from the universe of Buy-rated, U.S.-listed stocks covered by BofA Global Research fundamental equity research analysts. The firm is removing Arista Networks (ANET), Thomson Reuters (TRI) and U.S. Bancorp (USB) from the list.

The move came a few days after BofA analyst Tal Liani upgraded Cisco to Buy from Neutral with a price target of $60, up from $55. The analyst sees three catalysts for growth acceleration: networking to normalize and see renewed growth driven by share gains, security growth to accelerate with the help of firewall stabilization and new product launches, and growth synergies from the Splunk acquisition. While Cisco’s next two quarters will remain pressured, this weakness is fully reflected in Street expectations, the analyst told investors in a research note.

CITI RESUME: Meanwhile, Citi resumed coverage of Cisco with a Neutral rating and $52 price target last month. The analyst also opened a “90-day positive catalyst watch” on the shares. While estimates likely come down for the next two quarters on a prolonged inventory correction and impact from Splunk, the stock’s multiple should expand modestly as the company benefits from Stage 2 artificial intelligence-related networking demand from sovereign nations and cloud providers, the analyst tells investors in a research note. Citi expects Cisco to benefit from the early close of the Splunk acquisition and a growing AI backlog.