He pointed out that Cisco's stock price has fallen 27% so far this year. Investors are concerned about Cisco's market position and fear that its market share will be lost to Arista Networks (ANET.US) and...Juniper Network(JNPR.US)'s competitors have taken over, and both companies have raised their 2022 growth guidance, while Cisco has not.
Investors are also concerned that Cisco may abandon its previous guidance of approximately 6% annual revenue and profit growth by fiscal year 2025. The company may make large-scale acquisitions to "accelerate the shift of revenue to more independent recurring sources" and may even lower its gross margin forecast, as its peers are doing.
Badri stated that despite the stock's low price, investor sentiment remains low ahead of the latest quarterly report.
Badri stated, "Overall, we believe that lower revenue growth expectations are prudent given the slight improvement in gross margins." The revenue slowdown was due to supply chain issues and declining revenue from operations in Russia and Ukraine.
Badri also stated that given Cisco's heavy reliance on its hardware shipments for its software business, the likelihood of Cisco announcing a "major" acquisition is "increasing." This transaction is likely to dilute the company's equity.
Despite facing multiple negative factors, Cisco's stock price is low, its free cash flow yield is 7%, and its gross profit margin and operating profit margin remain largely unchanged. Cisco has also addressed supply chain issues and the loss of market share in the large network equipment segment, so Badri considers Cisco "attractive."
As of press time, Cisco was down 0.28% in pre-market trading at $46.64.
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