Bank of America analysts downgraded Cisco Systems (NASDAQ:CSCO) shares to Neutral from Buy with a price target of $56 per share.
The analysts see a risk to 2H24/FY25 product revenue estimates and argue that the consensus “seems too high.”
“Street estimates are looking for a soft landing to Cisco’s product revenue growth, expecting it to grow 3% YoY in FY24 and 2% in FY25, after growth of 13% in FY23e and 6% in FY22. However, these estimates lead to FY24/FY25 product revenues that are much higher than historical levels,” analysts said in a client note.
As a result, the analysts slashed BofA’s estimates to reflect concerns over the near-term trends. They also argue that Cisco’s orders would need to jump for the company to meet Street’s targets.
“We model $5bn-$6bn of backlog drawdown in FY23, and an additional ~$4bn decline in 1H24, bringing the backlog to its normal historical levels of $4bn-$5bn by 2H24. This suggests that starting 2H24, annualized product revenue estimates are $3bn-$6bn higher than the historical levels despite limited backlog support,” analysts added.
Cisco shares fell 1.8% on the news.