Is Cisco Undervalued At $46, Amid Network Recovery And Splunk Revenue Upside?

Core Viewpoint - Cisco Systems Inc has experienced a decline in stock performance, with a 9% drop since early January 2023, attributed to slowed product sales and reduced spending from large companies amid economic uncertainty [2][3] Financial Performance - In Q3 FY'24, Cisco's revenue decreased by nearly 13% year-over-year to $12.7 billion, with adjusted earnings at $0.88 per share [2] - The stock has shown minimal change, remaining around $45 since early January 2021, contrasting with a 45% increase in the S&P 500 over the same period [2] Competitive Landscape - Cisco's stock performance has lagged behind competitors, with returns of 42% in 2021, -25% in 2022, and 6% in 2023, while Arista Networks saw over a 300% increase during the same timeframe [3] - Cisco faces competition from smaller networking companies, impacting its growth potential [2] Future Outlook - Cisco's Q4 guidance suggests potential stabilization in demand, projecting sales between $53.6 billion and $53.8 billion for the year ending July, an increase from previous forecasts [3] - Gross margins improved to 65%, up 170 basis points year-over-year, driven by lower costs and better product mix [3] - The acquisition of Splunk aims to enhance Cisco's cybersecurity offerings and drive revenue synergies, with an annualized recurring revenue of $29.2 billion, including $4.2 billion from Splunk [3] Valuation - Cisco stock is considered undervalued, trading at approximately 13 times consensus earnings for FY'24, with a projected value of $55 per share, about 20% above the current market price [4] - The company's shift towards a recurring revenue model and focus on cybersecurity may support future growth [4]