Cisco dips after HSBC cuts rating on valuation, business momentum

[CISCO headquarters in Silicon Valley]
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Shares of Cisco Systems' (NASDAQ:CSCO [https://seekingalpha.com/symbol/CSCO]) fell about 2% on Friday after HSBC downgraded its rating to Hold from Buy, citing valuation and business momentum.

The firm also cut its price target on Cisco's stock to $69 from $73.

Analysts led by Stephen Bersey said the company's fourth quarter [https://seekingalpha.com/news/4484888-cisco-capitalizes-on-ai-demand-shares-slip-as-fy26-outlook-lands-in-line-with-estimates] fiscal 2025 results and fiscal year 2026 guidance were in line with consensus but below HSBC's estimates.

Cisco initiated first quarter fiscal 2026 and fiscal 2026 revenue and EPS guidance that is largely in line with pre-fourth quarter results consensus but below HSBC's estimates, according to the analysts.

The analysts said they expected Cisco's networking segment to report improved growth versus a low base as its sector emerged from several quarters of destocking.

The analysts added that Cisco's networking revenue growth accelerated from -23.5% year over year in the first quarter of fiscal 2025 to +12.2% in the fourth quarter of fiscal 2025. Yet the company's fiscal 2026 revenue guidance (+5% year over year), along with slowing growth in remaining performance obligations plus backlog, suggests the restocking effect may be coming to an end sooner than we expected, the analysts noted.

"Though the company reported more than USD2bn of AI infrastructure orders in FY25, strength seems to be getting offset by weakness elsewhere," said Bersey and his team.

The analysts noted that Cisco's shares are up about 42% since August 16, 2024, outperforming broader Nasdaq by 19 percentage points, and appear fairly valued.

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