Cisco ticks higher after upgrades at HSBC, New Street

Cisco Systems’ (NASDAQ:CSCO) stock rose about 2% on Friday after New Street and HSBC upgraded their rating on the shares.

New Street upgraded the stock to Buy from Neutral with a $57 price target.

The analysts noted that cyclical headwinds are now behind and Cisco is returning to growth.

The transition to subscription-based and software-defined products will drive continued margin expansion.

Cisco’s fiscal 2025 forecast (3% growth, around low-single-digit organic decline) implies that the company, excluding Splunk, will return to growth in end July 2025.

On Wednesday, Cisco reported fourth quarter fiscal 2024 results that featured an earnings beat, a 7% reduction in workforce and a shift in the business’ focus.

HSBC has upgraded Cisco to Buy from Hold and raised the price target to $58 from $46.

Analysts at HSBC expect Cisco’s non-GAAP EPS to rise at a Compound annual growth rate, or CAGR, of 11.6% over CY24-27. For fiscal 2025, HSBC expects non-GAAP EPS of $3.86, ahead of company guidance of $3.55 and consensus of $3.57.

The analysts expect networking revenue to report double-digit year-over-year growth for the last 9 months of fiscal ’25, off a low base. Growth in the first quarter of fiscal 2025 is likely to remain weak at -20%year-on-year given a tough compare, as the first quarter of fiscal 2024 benefitted from high order backlog, according to the analysts.

The analysts added that many of HSBC’s covered companies selling into the networking market reported weak results over the last several quarters due to destocking by customers. However, company comments within the space have indicated that the period of destocking is behind and that sector demand is inflecting.

HSBC expects security and collaboration segment organic revenue growth at 6% and 12%, respectively, in fiscal ’25 and in line with the recent trends. Reported growth, however, is likely to be 44% and 48.5%, respectively, due to the previous acquisition of Splunk.

The analysts noted that they are conservatively modelling a fiscal ’25 non-GAAP cost increase at 6.9% (fiscal ’24: -0.8%). Cisco guidance implies an even higher increase, even though it is laying off 7% of its workforce. The company intends to offset the layoffs by hiring more people in lower-cost geographies, but is also hiring in high-potential priority areas, as per the analysts.

Cisco (CSCO) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is more positive with a Buy and so is the average Wall Street analysts’ rating, Buy.