Cisco Systems Inc_ FQ2 Preview & VAR Call Recap_ Better Environment Supports Numbers

Summary of Cisco Systems Inc. FQ2 Preview & VAR Call Recap Company Overview - Company: Cisco Systems Inc - Industry: Telecom & Networking Equipment - Market Cap: $250.59 billion - Current Stock Price: $62.57 (as of February 5, 2025) - Price Target: $68.00 - Fiscal Year Ending: July 2025 Key Takeaways - Earnings Report: Cisco is set to report FQ2 earnings on February 12, 2025, after market close [3] - Positive Environment: A strengthening data center spending environment is expected to support Cisco's results, despite soft spending from the US Federal sector [4][8] - Order Growth Expectations: Anticipated orders are expected to grow in the mid-to-high teens year-over-year (Y/Y) for inorganic orders and low-single digits for organic orders [4][8] - Data Center Demand: Increased demand for data centers is driven by customers modernizing infrastructure for additional capacity and adopting multi-cloud environments [4] - Service Provider Outlook: Service provider data points are largely optimistic, although Juniper's routing results present some caution [4][8] - Federal Sector: The US Federal sector is not expected to recover yet, with campus spending also under scrutiny following Juniper's results [4][8] Financial Metrics - Earnings Per Share (EPS): - FY25e: $3.63 - FY26e: $3.85 - FY27e: $4.19 [6] - Revenue Growth: Expected to be 3.7% for FY25 and FY26 [32] - Operating Margin: Projected at 33.8% for FY25 [32] - Free Cash Flow (FCF) Growth: Expected to grow by 14.6% in FY25 [32] Market Positioning - Valuation Multiple: Cisco is projected to trade at a ~16x multiple, with a potential path to mid-$60s on earnings revisions as the spending environment improves [4][8] - Competitive Landscape: Cisco is becoming more aggressive in winning deals, particularly against competitors like Arista Networks and Juniper Networks [17][18] - Partnerships: The partnership with Nutanix is viewed as an attractive opportunity, enhancing Cisco's market position [17] Risks and Considerations - Federal Spending: Continued weakness in the US Federal sector could impact overall performance [8] - BEAD Opportunity Delay: The Broadband Equity, Access, and Deployment (BEAD) funding opportunity is expected to be pushed from 2025 to 2026 due to changing criteria [14][15] - Integration Challenges: The integration of Splunk is critical; poor integration could lead to share losses and affect growth [18][30] Conclusion - Investment Rating: Cisco is rated as Overweight with a price target of $68.00, reflecting confidence in its ability to navigate the current market dynamics and capitalize on growth opportunities in the data center and networking sectors [6][17]