Cisco posts better than feared earnings, is it time to buy?

Cisco (CSCO) delivered a solid Q4 earnings report, exceeding both revenue and EPS expectations, which led to a 4.7% increase in its stock price during after-hours trading. The company reported revenue of $13.59 billion, slightly above analyst expectations of $13.54 billion, and adjusted EPS of $0.85, also beating the consensus estimate of $0.83. This performance marks a continuation of Cisco's ability to navigate a challenging macroeconomic environment while maintaining robust financial results.

The company's guidance for the upcoming fiscal year was in line with expectations, though somewhat conservative, reflecting cautious optimism. Cisco projected Q1 revenue growth of 0-2% year-over-year, with an EPS range of $0.82 to $0.84, which aligns with analysts' forecasts. For the full fiscal year, Cisco expects revenue growth of 1-3% and adjusted EPS in the range of $3.50 to $3.60. While the guidance suggests modest growth, it highlights the company's focus on maintaining stability in an uncertain market environment.

Shares of CSCO are challenging critical down trend resistance at the $48 area. Investors are reacting favorably to the news as there were low expectations. It would appear the recent purchase of Splunk and AI investments are providing a tailwind to results and the struggling hardware segment. Investors should have this name on the radar as a long term swing.

In terms of segment performance, Cisco saw strength in its security and enterprise networking divisions, both of which benefited from ongoing demand for digital transformation and cybersecurity solutions. The security segment, in particular, continues to be a bright spot for Cisco, driven by the increasing need for robust cybersecurity infrastructure across industries. On the other hand, the traditional networking business faced headwinds, reflecting a broader slowdown in enterprise spending on hardware.

Cisco's recent $28 billion acquisition of Splunk was another key focus. The company highlighted the strategic importance of this acquisition in expanding its software and data analytics capabilities, positioning Cisco as a more comprehensive provider of digital solutions. Management expressed confidence that the integration of Splunk would be smooth and that the acquisition would start contributing positively to Cisco's revenue and margin growth in the coming quarters.

Additionally, Cisco addressed its ongoing restructuring efforts, which include a new round of layoffs aimed at streamlining operations and focusing on high-growth areas like AI and cybersecurity. The company did not specify the exact number of employees affected but indicated that the restructuring is part of a broader strategy to optimize its workforce and invest in key growth areas. This follows a previous round of layoffs earlier in the year, underscoring Cisco's commitment to maintaining operational efficiency.

The market's positive reaction to Cisco's earnings report was also supported by favorable analyst commentary. Last Friday, Morgan Stanley analyst Meta Marshall reiterated her Overweight rating for Cisco and reaffirmed her $58 price target, citing the company's attractive valuation relative to the broader market. Marshall highlighted Cisco's price-to-earnings multiple, which is significantly lower than that of the S&P 500, as a key reason why the stock could continue to grind higher, especially on the back of the Q4 EPS beat.

Overall, Cisco's Q4 earnings report reflects a company that is successfully managing through a period of economic uncertainty while positioning itself for future growth. The strong performance in key segments, strategic acquisitions like Splunk, and ongoing efforts to streamline operations all contribute to a positive outlook for the company. Investors and analysts alike will be closely watching how Cisco executes on its growth strategy in the coming quarters, particularly in the areas of cybersecurity, AI, and digital transformation.