Wall Street cautious on Cisco ahead of Q1 results despite 'ample backlog,' low valuation


Cisco Systems (NASDAQ:CSCO) is slated to report fiscal first-quarter results on November 16 and Wall Street analysts are wary on the IT giant, despite its low valuation and “ample backlog,” according to some.

Morgan Stanley analyst Meta Marshall, who has an equal-weight rating and $48 price target on Cisco (CSCO), noted the company’s backlog, supply constraints and low valuation set the stock up as a “more defensive holding” given the environment. Marshall added that estimates are achievable but its exposure to international markets could be a concern.

“Backlog and constrained supply limit surprise on [first-quarter], but demand indicators leaning further cautious limits upside,” Marshall wrote in a note to clients.

The analyst added that Cisco (CSCO) shares are set up “relatively defensively” going into the results thanks to supply constraints and its “ample backlog” could help it meet expectations, even as order growth slows.

A consensus of analysts expect Cisco to earn 84 cents per share and $13.29B in revenue.

Marshall added that “there is some room for outperformance” by Cisco (CSCO) relative to its peers given specific redesigns should start helping the company this quarter and recent demand commentary suggests some moderation in growth in the U.S.

Citi analyst Jim Suva, who rates Cisco (CSCO) shares sell with a $44 price target, added that the Chuck Robbins-led company is likely to “modestly” beat revenue estimates given the “robust” demand for switches, citing Arista Network’s (ANET) recent results. However, Suva does not expect the performance to be as strong.

“The magnitude of the beat is unlikely to be nearly as large as it was for Arista, in our view, or enough to stem Cisco’s share losses,” Suva wrote in a note to clients.

The analyst added that Cisco (CSCO) is likely to keep facing supply chain challenges, more than its competitors, but with a lack of going concern issues or free cash flow problems, Cisco (CSCO) may continue to see multiple compression due to inventory issues and market share loss.

Evercore ISI analyst Amit Daryanani, who has an outperform rating and a $56 price target on Cisco (CSCO), explained the company’s results are likely to come “modestly ahead” of Wall Street expectations and may even offer guidance that could “bracket expectations.”

“Our checks throughout the quarter have suggested that Cisco is seeing better demand tailwinds as supply continues to improve across their core campus and data center solutions; at the same time, we think Cisco has been more aggressive in picking up share in the security and optical space (though this part could dilute [gross margins] somewhat),” Daryanani wrote.

Last week, Cisco (CSCO) said it would open up a new advanced semiconductor design center in Barcelona, Spain as Europe looks to expand its semiconductor ecosystem.

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