Cisco Systems Inc is set to report its Q3 FY’24 results on May 14, with expectations of a slight decline in revenue compared to last year. The company’s product sales have slowed as customers focus on implementing previously purchased inventory, leading to a 9% decline in product revenue in Q2 FY’24. Competition from smaller networking companies is also impacting growth. However, Cisco has seen growth in service sales and software subscriptions, with service revenue rising by 4% in the last quarter.
On the margins front, Cisco has been making progress with overall gross margins increasing in recent quarters, driven by lower costs and a favorable product mix. The company has been moving towards a recurring revenue model with its software subscriptions and services contracts, with total annualized recurring revenue reaching $24.7 billion, up 6% year over year. The company expects this metric to grow by another $4 billion following the acquisition of Splunk.
While Cisco stock has seen gains in recent years, it has underperformed the S&P 500 in 2022 and 2023. The stock currently trades at about 14x consensus earnings for FY’24, which is seen as undervalued by some analysts. Cisco’s push into the recurring revenue model and focus on cybersecurity could help drive the stock price higher. The company is expected to perform better than its big tech peers in the event of a potential economic downturn due to the secular spending trends on digitization and networking.
Analysts value CSCO stock at about $55 per share, which is 15% higher than the current market price. The company’s focus on recurring revenue and cybersecurity, as well as its resilience in uncertain economic environments, are seen as key factors that could drive the stock price higher. Investors are advised to keep an eye on Cisco’s Q3 FY’24 results for more insights into the company’s performance and potential growth prospects.
Overall, Cisco’s Q3 FY’24 results are expected to show a slight decline in revenue compared to last year, driven by customers focusing on implementing previously purchased inventory. The company’s push towards a recurring revenue model and increasing focus on cybersecurity could help drive the stock price higher. Analysts value CSCO stock at about $55 per share, 15% higher than the current market price. Investors are advised to closely monitor Cisco’s performance and growth prospects in the upcoming quarter to make informed investment decisions.
