Here’s what Wall Street experts are saying about Cisco ahead of earnings

Cisco (CSCO) is scheduled to report results of its fiscal first quarter after the market closes on November 15 with a conference call scheduled for 4:30 pm ET. What to watch for:

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GUIDANCE: Along with its last report, Cisco guided for Q1 adjusted earnings per share of $1.02-$1.04 onr evenue of $14.5B-$14.7B. At the time, analysts were guiding for Q1 EPS of 99c on revenue of $14.62B, and while the revenue consensus remains unchanged, the Wall Street estimate for EPS has since risen to $1.03.

SPLUNK DEAL: In late September, Cisco and Splunk (SPLK) announced a definitive agreement under which Cisco intends to acquire Splunk for $157 per share in cash, representing approximately $28B in equity value. Upon close of the acquisition, Splunk President and CEO Gary Steele will join Cisco’s Executive Leadership Team reporting to Chair and CEO Chuck Robbins. The transaction is expected to be cash flow positive and gross margin accretive in the first fiscal year post close, and non-GAAP EPS accretive in year two. Additionally, it will accelerate Cisco’s revenue growth and gross margin expansion. The transaction will not impact Cisco’s previously announced share buyback program or dividend program. The acquisition has been unanimously approved by the boards of directors of both Cisco and Splunk. It is expected to close by the end of the third quarter of calendar year 2024, subject to regulatory approval and other customary closing conditions including approval by Splunk shareholders.

Immediately following the announcement, Stifel said the transaction “makes sense” for Cisco, as it attempts to leverage its position in the corporate data center and broaden its high margin, highly recurring, software revenue base and feels the Splunk assets would fit well with the AppDynamics APM business Cisco acquired in 2017. Additionally, Goldman Sachs said it was “encouraged” by Cisco’s efforts to strengthen its portfolio in next-gen AI observability and security and the expected cash flow accretion in the first year of the deal, with limited product overlap likely to dampen the risk of dissynergies, the analyst told investors in a research note. Goldman Sachs added, however, that while Splunk should benefit from Cisco’s global enterprise go-to-market capabilities, the firm is also cognizant of execution risk for Cisco as Splunk continues to transition to the cloud, along with its history of execution challenges.

RAYMOND JAMES DOWNGRADE: Last week, Raymond James analyst Simon Leopold downgraded Cisco to Market Perform from Outperform without a price target. The analyst believes declining campus sales, which likely amount to about a third of the company’s sales, decline in 2024 and contribute to an overall sales decline. In addition, while Cisco’s pending $28B Splunk acquisition makes strategic sense, it reduces options for Cisco and lacks differentiation as competitive pressures mount, says the firm. Its preliminary checks suggest Cisco ‘s October quarter at least met expectations, but envisions risk to the outlook.