Cisco Systems Inc. likely had a strong October quarter, according to Raymond James analyst Simon Leopold, but he’s still taking a more cautious view on the stock.
Leopold downgraded Cisco shares
CSCO,
to market perform from outperform Monday, despite “encouraging” industry checks regarding Cisco’s October quarter, results for which the company will report Nov. 15. He’s more worried about the future, warning about growth trends moving forward.
“We think the logic of a period of slowing after the supply chain recovery and backlog draw down is partially reflected in Cisco’s shares,” Leopold wrote. “However, we doubt many appreciate the prospect for Cisco to provide limited to no sales growth over two fiscal years.”
Leopold added that outside of hyperscale players, “capital spending is decelerating across the majority of industries.”
The stock was off 0.5% in premarket trading.
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He’s particularly focused on Cisco’s campus sales, which he thinks represent about a third of company sales. That market could decline at a mid-to-high single-digit rate, according to Leopold.
Investors could start seeing warning signs from Cisco shortly, in his view. “We imagine Cisco could forecast a worse than seasonal sales decline in its January quarter while customers absorb prior purchases and the macro remains weak,” he noted.
Leopold also took a mixed view on Cisco’s pending $28 billion deal for Splunk Inc. On one had, it “makes strategic sense” as it complements the company’s extended detection and response (XDR) business. But the acquisition also “caps Cisco’s ability to make other deals, raise its dividend or buy other companies,” all while Splunk lacks differentiation relative to its peers.
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Cisco shares have advanced 8% so far this year as the Dow Jones Industrial Average
DJIA
has slipped 2%.
