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Cisco Systems (CSCO - Free Report) shares have declined 9.3% year to date, underperforming the Zacks Computer & Technology sector’s return of 10.6%. 

It has been suffering from sluggish networking sales, primarily due to lackluster demand from telecommunication and cable services providers, as well as stiff competition. 

Cisco’s prospects are further challenged in the AI-driven networking space due to stiffening competition aggravated by Hewlett Packard’s (HPE - Free Report) pending deal to acquire Juniper.
 

Cisco’s Q4 Forecast Cloudy

Cisco is set to report its fourth-quarter fiscal 2024 results on Aug 14. It currently expects revenues between $13.4 billion and $13.6 billion and earnings between 84 and 86 cents per share.

The Zacks Consensus Estimate for fourth-quarter fiscal 2024 revenues is currently pegged at $13.52 billion, suggesting an 11.07% year-over-year decline. The consensus mark for earnings is currently pegged at 85 cents per share, unchanged over the past 30 days, indicating a 25.44% decline year over year.

For fiscal 2024, revenues are expected between $53.6 billion and $53.8 billion. Non-GAAP earnings are anticipated between $3.69 and $3.71 per share.

The Zacks Consensus Estimate for fiscal 2024 revenues is currently pegged at $53.67 billion, suggesting a 5.83% year-over-year decline. The consensus mark for earnings is currently pegged at $3.71 per share, unchanged over the past 30 days, indicating a 4.63% decline year over year.
 

Cisco’s Long-Term Prospects Ride on Innovation

The increase in AI-related workload presents a strong long-term opportunity for Cisco, thanks to an innovative portfolio. Total growth opportunity is currently pegged at $950 billion with current markets expected to witness a CAGR of 6% and expansion markets a CAGR of 16% between 2025 and 2027 timeframe.

Cisco currently has more than $800 million in AI orders from hyperscalers, with more than $1 billion in orders in the pipeline for fiscal 2025. 

The Security segment is particularly noteworthy, with solutions like XDR, Secure Access and Multicloud Defense suites that are winning customers. Current markets are expected to witness a CAGR of 8% and expansion markets a CAGR of 14% between the 2025 and 2027 timeframe. The Splunk acquisition is expected to further boost CSCO’s prospects in the domain, with addressable markets worth $118 billion.

In the infrastructure domain, Cisco’s addressable market is currently pegged at $221 billion. CSCO has been benefiting from the growing usage of AI and cloud with the ongoing digital transformation happening at enterprises.
 

Strong Partner Base Drives Growth

Cisco’s expanding partner base, including the likes of Microsoft, Nvidia (NVDA - Free Report), Lenovo, and AT&T (T - Free Report), deserves attention. 

The Cisco-NVIDIA partnership has introduced the Cisco Nexus HyperFabric AI cluster solution, a new end-to-end infrastructure designed to scale generative AI workloads efficiently. 

Cisco is collaborating with AT&T to introduce a seamless digital buying experience for businesses, offering 5G Fixed Wireless Access through the Meraki MG52 and MG52E gateways.
 

Cisco’s 2025 Prospects Are Strong

Cisco now expects inventory destocking to be completed by July this year. This is expected to boost demand in fiscal 2025. 

CSCO expects revenue growth to be in the low to mid-single-digit range for the fiscal year. The Zacks Consensus Estimate for fiscal 2025 revenues is currently pegged at $55.31 billion, indicating 3.06% year-over-year growth.
 

YTD Performance

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However, the negative impact of high interest related to the Splunk acquisition is expected to be $350 million per quarter. This, along with higher operating expenses, is expected to keep margins under pressure in fiscal 2025. Cisco expects the fiscal 2025 operating margin to be in line with the fourth-quarter fiscal 2024 guidance range of 31.5%-32.5%.

The Zacks Consensus Estimate for fiscal 2025 earnings has been steady over the past 30 days to $3.54 per share, suggesting a 4.53% year-over-year decline.
 

Estimate Revision

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Cisco Stock Overvalued Right Now

Cisco stock is not so cheap, as the Value Style Score of C suggests a stretched valuation at this moment. 

CSCO is trading at a premium, with a forward 12-month P/S of 3.34X compared with the Zacks Computer Network industry’s 2.88X, reflecting a stretched valuation.
 

Price/Sales Ratio (TTM)

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The shares are trading below the 50-day moving average, indicating a bearish trend.
 

CSCO Shares Trading Below 50-Day SMA

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Conclusion

Cisco shares have been declining due to the sluggishness in the networking business. 

However, an expanding portfolio, a growing footprint in the cybersecurity domain and a strong partner base are key catalysts that can help CSCO shares rebound in fiscal 2025 despite modest growth prospects and stretched valuation.

Cisco currently carries a Zacks Rank #2 (Buy). 

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