Cisco: 5K New Splunk Customers Means $1.4B In Potential Additional Revenue

Core Thesis - Cisco Systems is considered undervalued despite potential misses in earnings estimates for 2024-2026, with a fair price estimate of $63.63 and a future price of $92.46 for 2029, supporting a "strong-buy" rating [2][172]. Financial Performance - Cisco reported Q3 2024 earnings, beating EPS estimates by 7.3% and revenue by 5.5%, while increasing its 2024 revenue outlook to $53.6-53.8 billion, surpassing the previous estimate of $53.4 billion [2]. - The stock price has remained flat since the last analysis, decreasing by 0.13% [2]. Growth Strategy - Cisco's growth strategy focuses on enhancing networking equipment to meet the demands of AI data centers, which require improved routers and cables [3]. - The company aims to secure partnerships with key clients to support its networking improvements [3]. Market Position - Cisco holds a 15.32% market share in the networking sector, with competitors like Juniper Networks (2.80%), Arista Networks (3.19%), and Broadcom (4.70%) [5]. - The global networking segment of the data center market is projected to grow at a CAGR of 6.88%, reaching $256.10 billion by 2028 [7]. Addressable Market - Cisco's current addressable market is estimated at $411.76 billion, expected to grow to $682.41 billion by 2028/2029, reflecting a 13.14% annual growth rate [11]. - The IoT market is anticipated to grow from $1.38 billion in 2024 to $2.22 billion by 2028, with a CAGR of 12.57% [8]. Segment Performance - In FY 2023, Cisco's networking segment grew by 14.09%, while other segments like internet for the future and end-to-end security grew by 8.8% and 7.57%, respectively [12]. - The collaboration segment experienced a decline of -7.44% [12]. Valuation Insights - A DCF model indicates a fair price per share of $63.63, which is 28.1% above the current stock price of $49.67, with a future stock price of $92.46 suggesting a 14.4% annual return from 2024 to 2029 [19][167]. - The addition of Splunk is expected to contribute approximately $4.21 billion in new revenue, potentially increasing to $5.62 billion for FY2025 [172].