The global IP-based networking giant, Cisco Systems Inc. CSCO, reported solid second-quarter fiscal 2025 earnings results surpassing the consensus estimates on several counts. Consequently, on Feb 12, the stock price was up 6.6% in the after-market trading session. 

Strong Second-Quarter Results

Cisco came up with quarterly adjusted earnings of $0.94 per share, beating the Zacks Consensus Estimate of $0.91 per share. This compares to earnings of $0.87 per share a year ago. 

CSCO posted quarterly revenues of $13.99 billion, surpassing the Zacks Consensus Estimate by 0.91%. This compares to year-ago revenues of $12.79 billion. The company recorded revenue growth after four successive quarters of decline. 

Cisco continued to suffer from networking sales, primarily due to lackluster demand from telecommunication and cable services providers, as well as stiff competition. However, in the last reported quarter, revenues from networking products exceeds the consensus estimate.

On the other hand, revenues from observability, services, security and collaboration increased year over year, beating the respective consensus estimates. Similarly, non-GAAP margin for both product and service outpaced the consensus estimates. 

Future Catalysts

The acquisition of Splunk in March 2024 was accretive to adjusted earnings per share sooner than expected. Splunk enhances CSCO’s recurring revenue base. Cisco rolled out Splunk on Microsoft Corp.’s MSFT Azure.

Moreover, the launch of artificial intelligence (AI)-powered Hypershield, which combines security and networking, strengthened Cisco’s security portfolio. Management said in a conference call that AI infrastructure orders with webscalers surpassed $350 million in the second quarter. Total AI infrastructure orders reached around $700 million. Management is expecting order size to exceed $1 billion in fiscal 2025.

Cisco specifically stated its three prone strategies to expand its AI opportunity. First, AI training infrastructure for webscale customers. Second, AI inference and enterprise clouds including Nexus switches, NVIDIA Corp. NVDA-based AI servers, AI PODs, and Hyperfabric and AI Defense software. Third, AI network connectivity.

Impressive Guidance

Cisco raised its projection for fiscal 2025 (ending July 2025) EPS in the range of $3.68-$3.74 from $3.60-$3.66 estimated in November. The mid-point of the current EPS range of $3.71 is well above the current Zacks Consensus Estimate of $3.65. 

The projection for fiscal 2025 revenues was raised to $56-56.5 billion from $55.3-56.3 billion forecast in November. The mid-point of the current revenue range of $56.25 billion is well above the current Zacks Consensus Estimate of $55.93 billion.

The chart below shows the price performance of Cisco Systems in the past year.

Image Source: Zacks Investment Research

Solid Earnings Estimate Revisions for CSCO Stock

The current Zacks Consensus Estimate for fiscal 2025 earnings has improved 0.3% in the last 60 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 3.9% and 6.9%, respectively, for revenues and EPS in fiscal 2026. The Zacks Consensus Estimate for fiscal 2026 earnings has improved 0.3% in the last 30 days.

We believe that analysts estimates for fiscal 2025 and 2026 EPS and revenues will increase in coming days after the release of excellent second-quarter financial numbers. 

Image Source: Zacks Investment Research

Buy CSCO Shares to Gain in the Near Term

In the past year, Cisco provided a 25.9% return, marginally exceeding the S&P 500’s return of 23.4%. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. A favorable Zacks Rank and an earnings beat are likely to set the trajectory of CSCO’s stock northward. 

Cisco currently carries the forward P/E of 17.09X for the current financial year, compared with 17.32X of the industry and 18.62X of the S&P 500. CSCO has a return on equity of 25.7% compared with -5.53% of the industry and 16.84% of the S&P 500 Index.

The short-term average price target of brokerage firms for the stock represents an increase of 3.6% from the last closing price of $62.53. The brokerage target price is currently in the range of $78-$56. This indicates a maximum upside of 24.7% and a maximum downside of 10.4%.

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