Should Cisco Systems Stock be in Your Portfolio Pre-Q2 Earnings?

Cisco Systems (CSCO) is preparing to announce its second-quarter fiscal 2025 results on February 12. As investors look to make informed decisions, understanding the potential performance of CSCO can help in evaluating whether to include it in their portfolios.

The company projects its second-quarter fiscal 2025 revenues to fall between $13.75 billion and $13.95 billion. In terms of earnings, Cisco anticipates a non-GAAP earnings range of 89 to 91 cents per share.

Currently, the Zacks Consensus Estimate anticipates revenues of $13.86 billion, reflecting an 8.36% increase compared to the previous year's results. The earnings consensus remains at 91 cents per share, indicating an expected year-over-year growth of 4.6%.

Importantly, Cisco has consistently surpassed the Zacks Consensus Estimate in all four previous quarters, achieving an average of 4.14% above expectations. This track record sets a positive backdrop as the company approaches its financial announcement.

Key Factors to Note for CSCO’s Q2 Earnings

For the second quarter of fiscal 2025, Cisco's results are expected to benefit from a rise in demand for networking products. This includes robust interest in the Nexus series of data center switches and the growing demand for Cisco’s advanced 400 gig and 800 gig switches, which utilize Silicon One technology.

The Zacks Consensus Estimate for Networking revenues in the second quarter stands at $6.663 billion, indicating a slight decline of 6% year-over-year. In the first quarter, however, Collaboration product orders showed a remarkable growth, attributed to the demand for devices and Cisco's Cloud Webex Suite. The rollout of the Webex AI Agent and associated features is projected to add to the company’s revenue.

For Collaboration revenues, the consensus is pegged at $1.004 billion, suggesting a year-over-year growth of 1.5%. Moreover, Cisco is experiencing notable growth in its Security segment, propelled by high demand for offerings like Extended Detection and Response (XDR) and Multicloud Defense solutions. The integration of Splunk has been a crucial factor aiding in this growth.

In the first quarter of fiscal 2025, Security orders more than doubled compared to the previous year, thanks to the advanced threat intelligence provided by Splunk. The Zacks Consensus Estimate for Security revenues in the second quarter is currently set at $1.987 billion, showcasing an impressive year-over-year growth of 104.2%.

CSCO Shares Outperform Sector, Industry

Over the past 12 months, Cisco shares have increased by 24.5%, outperforming the Zacks Computer & Technology sector, which saw a rise of 20.7%, as well as the Zacks Computer Networking industry that recorded a 23.6% increase.

CSCO Stock’s Performance

Despite this growth, it's important to recognize that Cisco stock is not considered cheap at the moment, as indicated by a Value Score of D, suggesting a somewhat stretched valuation. Currently, Cisco is trading at a forward 12-month price-to-sales (P/S) ratio of 4.34, exceeding the industry average of 3.98.

Cisco’s Prospects Ride on Strong Portfolio

The rise in AI-related workloads offers a significant growth opportunity for Cisco, attributed to its innovative product offerings. The company is making bold investments in AI, cloud solutions, and cybersecurity, with expectations to achieve over $1 billion in orders for fiscal 2025.

The Cisco 8000 series, utilizing Cisco's Silicon One G200, features scalable and low-power switches equipped with state-of-the-art load balancing, making them ideal for AI networks. This design encourages hyperscalers to adopt the Cisco 8000 for enhanced efficiency in their backend AI training processes.

In early 2025, Cisco plans to launch HyperFabric, a fabric-as-a-service solution that aims to simplify the deployment and management of infrastructure while providing real-time visibility into network performance.

Furthermore, Cisco's wireless innovations include Wi-Fi 7 access points integrated with AI, offering secure and adaptable connectivity. These solutions, linked with Cisco Spaces, aim to optimize smart workplaces.

Also noteworthy is Cisco’s software portfolio, featuring platforms like AppDynamics for comprehensive observability and Cisco SecureX for effective security management. Tools like Webex AI Agent and AI Assistant enhance productivity and customer satisfaction through automated conversational intelligence.

Rich Partner Base Boosts CSCO’s Prospects

Cisco's expansive network of partners, including significant companies like Microsoft, NVIDIA, and Meta, strengthens its market position. The collaboration with NVIDIA enhances Cisco’s data center infrastructure, exemplified by the recent NVIDIA-powered AI server solutions which are designed to facilitate AI infrastructure management via Cisco Intersight.

Conclusion

The anticipated near-term results for Cisco suggest a favorable outlook driven by a recovering networking business and a rapidly expanding security sector. The combination of a diverse product portfolio and a strong partner ecosystem positions CSCO for potential appreciation in its stock value throughout fiscal 2025.

Cisco currently holds a Zacks Rank #2 (Buy), indicating that investors might consider adding this stock to their portfolios ahead of the upcoming fiscal second quarter results.

Cisco, Investment, Earnings