Cisco Reports Strong Earnings And Positive Outlook, Splunk Inclusion Supports Our Long-Term Thesis

In a recent article by Morningstar, the Key Metrics for Cisco Systems were discussed. Despite weak networking demand caused by over-orders from customers in 2022 and 2023, Cisco’s fiscal third-quarter results were in line with expectations. The integration of the Splunk acquisition into the model following its closure in March contributed to a positive outlook. The acquisition added some inorganic revenue, leading to a 5% increase in shares after-hours due to improved fiscal guidance and positive comments on the return of networking demand.

The article highlights that sales fell 13% year over year to $12.7 billion in the quarter, including the contribution from Splunk. Organically, sales fell about 3% more. Cisco’s core networking business experienced a 27% year-over-year decline, while security and observability revenues showed double-digit growth with the inclusion of Splunk. Gross and operating margins increased slightly, but are expected to decrease in the next quarter due to integration costs.

The fiscal guidance for the fourth quarter was in line with expectations, with an implied return to sequential growth both with Splunk and organically. Management raised guidance for the fiscal year to reflect the inclusion of Splunk, indicating consistent organic guidance for the entire year. Sales of $13.5 billion in the fourth quarter imply 6% sequential growth, with approximately 2% of that being organic.

Overall, Morningstar maintains a $50 fair value estimate for Cisco Systems shares. They view the Splunk acquisition as value-neutral and continue to see Cisco stock as fairly valued. Despite the challenges in networking demand, positive signs from the acquisition and the company’s fiscal guidance have led to a favorable outlook for Cisco Systems moving forward. The author(s) do not own shares in any of the securities mentioned in the article, demonstrating objectivity in the analysis.

Article Source
https://www.morningstar.com/stocks/cisco-earnings-positive-guidance-splunks-inclusion-align-with-our-long-term-thesis