Cisco Systems (CSCO) shares have seen a significant decline of 9.4% year-to-date, performing poorly compared to the Zacks Computer & Technology sector, which has seen a 29.5% increase. The company is facing challenges in the form of slow network sales, particularly due to weak demand from telecom and cable service providers, as well as tough competition in the market. Additionally, excess customer inventory has also been a hindrance to growth, with a 12.8% decrease in revenue reported in the third quarter of fiscal year 2024, mainly driven by a decline in product revenue.
Despite these short-term challenges, Cisco’s long-term outlook remains promising thanks to its innovative portfolio, particularly in the security segment. The company has seen growth in security revenue, with initiatives like the acquisition of Splunk and Isovalent strengthening its portfolio and increasing its recurring revenue base. Partnerships with companies like NVIDIA, Lenovo, and AT&T are also expected to drive growth in the AI space.
However, the short-term outlook for Cisco remains lackluster, with revenue and earnings expected to decline in the fourth quarter of fiscal year 2024. The company is also facing margin pressures due to high interest related to acquisitions. While revenue growth is expected in the low- to mid-single-digit range for fiscal year 2025, margins are expected to remain under pressure.
Investors are advised to wait for a better entry point for Cisco, given its current premium valuation. The company currently holds a Zacks Rank of 3 (Hold). It is important for investors to stay updated on the latest recommendations from Zacks Investment Research to make informed decisions regarding Cisco’s stock.
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