Cisco Systems Inc (NASDAQ: CSCO) has faced challenges this year, with its stock falling about 9% since the beginning of January. The company has seen a slowdown in product sales as customers focus on deploying purchased products. Additionally, large companies are cutting back on network spending amid economic uncertainty. Competition from smaller networking companies has also impacted Cisco’s growth.
During the third quarter of FY24, Cisco’s revenue fell almost 13% year over year to $12.7 billion, with adjusted earnings of $0.88 per share. Despite this, CSCO stock has remained relatively unchanged, hovering around $45 since early 2021. This is in contrast to the S&P 500, which has seen a 45% increase over the same period.
Compared to its competitors, Cisco’s performance has been lackluster. Its stock saw a 42% return in 2021, a -25% return in 2022, and a 6% return in 2023. In comparison, Arista Networks, a leading networking company, saw its stock rise by over 300% during the same period. Arista is part of the high-quality portfolio offered by Trefis, which has outperformed the S&P 500 consistently.
Cisco remains optimistic about stabilizing demand, with better-than-expected guidance for the fourth quarter. The company projects sales for the year ending in July to be between $53.6 billion and $53.8 billion, up from previous forecasts. Cisco has been making progress with gross margins, driven by lower costs and a focus on cybersecurity. The company recently acquired Splunk, a cybersecurity software provider, to help minimize the risk of incidents.
With a focus on recurring revenue and cybersecurity, Cisco is positioning itself for future growth. The company’s stock is currently undervalued, trading at about 13 times consensus earnings for FY24. Analysts believe that Cisco’s strategic initiatives could help drive growth and outperform its large tech peers. Valuation estimates suggest that CSCO stock is undervalued by approximately 20%.
Overall, despite challenges in the market, Cisco’s strategic moves toward recurring revenue and cybersecurity could benefit the company in the long run. Investors are hopeful that Cisco will bounce back from its recent underperformance and deliver stronger returns in the future.
Article Source
https://www.forbes.com/sites/greatspeculations/2024/06/21/is-cisco-undervalued-at-46-amid-network-recovery-and-splunk-revenue-upside/