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Cisco Systems Inc_ FQ2 Preview & VAR Call Recap_ Better Environment Supports Numbers
ARTHUR D. LITTLE·2025-02-10 08:58

Summary of Cisco Systems Inc. FQ2 Preview & VAR Call Recap Company Overview - Company: Cisco Systems Inc - Industry: Telecom & Networking Equipment - Market Cap: 250.59billion−∗∗CurrentStockPrice∗∗:250.59 billion - **Current Stock Price**: 62.57 (as of February 5, 2025) - Price Target: 68.00−∗∗FiscalYearEnding∗∗:July2025KeyTakeaways−∗∗EarningsReport∗∗:CiscoissettoreportFQ2earningsonFebruary12,2025,aftermarketclose[3]−∗∗PositiveEnvironment∗∗:AstrengtheningdatacenterspendingenvironmentisexpectedtosupportCisco′sresults,despitesoftspendingfromtheUSFederalsector[4][8]−∗∗OrderGrowthExpectations∗∗:Anticipatedordersareexpectedtogrowinthemid−to−highteensyear−over−year(Y/Y)forinorganicordersandlow−singledigitsfororganicorders[4][8]−∗∗DataCenterDemand∗∗:Increaseddemandfordatacentersisdrivenbycustomersmodernizinginfrastructureforadditionalcapacityandadoptingmulti−cloudenvironments[4]−∗∗ServiceProviderOutlook∗∗:Serviceproviderdatapointsarelargelyoptimistic,althoughJuniper′sroutingresultspresentsomecaution[4][8]−∗∗FederalSector∗∗:TheUSFederalsectorisnotexpectedtorecoveryet,withcampusspendingalsounderscrutinyfollowingJuniper′sresults[4][8]FinancialMetrics−∗∗EarningsPerShare(EPS)∗∗:−FY25e: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: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-60sonearningsrevisionsasthespendingenvironmentimproves[4][8]−∗∗CompetitiveLandscape∗∗:Ciscoisbecomingmoreaggressiveinwinningdeals,particularlyagainstcompetitorslikeAristaNetworksandJuniperNetworks[17][18]−∗∗Partnerships∗∗:ThepartnershipwithNutanixisviewedasanattractiveopportunity,enhancingCisco′smarketposition[17]RisksandConsiderations−∗∗FederalSpending∗∗:ContinuedweaknessintheUSFederalsectorcouldimpactoverallperformance[8]−∗∗BEADOpportunityDelay∗∗:TheBroadbandEquity,Access,andDeployment(BEAD)fundingopportunityisexpectedtobepushedfrom2025to2026duetochangingcriteria[14][15]−∗∗IntegrationChallenges∗∗:TheintegrationofSplunkiscritical;poorintegrationcouldleadtosharelossesandaffectgrowth[18][30]Conclusion−∗∗InvestmentRating∗∗:CiscoisratedasOverweightwithapricetargetof60s 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]