Buy Cisco on Strong Guidance, Estimate Revisions and Short-Term Upside

Core Insights - Cisco Systems Inc. reported strong fourth-quarter fiscal 2025 earnings, exceeding consensus estimates across multiple metrics, driven by robust demand for AI infrastructure products [1][8] - The company has integrated AI into its product offerings, enhancing its networking, security, collaboration, and observability solutions [1][10] Financial Performance - Annual Recurring Revenues (ARR) reached $31.1 billion, reflecting a 5% increase, with product ARR growing by 8% [3] - Total subscription revenues rose by 3% year over year to $7.9 billion, while Remaining Performance Obligations (RPO) increased by 6% to $43.5 billion [3] - Short-term RPO was reported at $21.7 billion, up 4%, indicating a strong recurring revenue base that supports long-term growth prospects [3] Strategic Developments - The acquisition of Splunk significantly enhances Cisco's recurring revenue base and expands its software-based solutions portfolio [4] - The launch of AI-powered Hypershield has strengthened Cisco's security offerings, combining security and networking capabilities [4] - Cisco's partnership with NVIDIA is pivotal, providing solutions for AI-ready data center networks, which is expected to drive enterprise demand [10] Guidance and Estimates - For fiscal 2026, Cisco anticipates revenues between $59 billion and $60 billion, up from $56.7 billion in fiscal 2025, with non-GAAP earnings projected at $4.00 to $4.06 per share [5][8] - The Zacks Consensus Estimate for first-quarter fiscal 2026 shows revenues of $14.77 billion, a 6.7% year-over-year increase, and earnings per share of $0.98, reflecting a 7.7% increase [6] Market Performance - Cisco has provided a year-to-date return of 13.7%, outperforming the S&P 500's return of 10.2% [11] - The average price target from brokerage firms suggests a potential increase of 13.5% from the last closing price, indicating a favorable risk-reward ratio [11] Investment Considerations - Cisco holds a Zacks Rank 2 (Buy), with a forward P/E of 16.67X, which is competitive compared to the industry and S&P 500 averages [12] - The company's return on equity stands at 27.02%, significantly higher than the industry average [12]