Piper Sandler analyst James Fish reiterated Cisco Systems Inc
On March 14, Cisco won the EU clearance for its pending Splunk deal, resulting in Cisco closing on Splunk on March 18, long ahead of the initial close date and giving Cisco approximately half a quarter of its contribution in the fiscal third quarter.
Cisco raised $13.5 billion of debt at a 5% average cost of debt at the end of February to finance the transaction.
Fish's "Base" Case that is now included in his estimates given the deal closure results in Splunk achieving over $5 billion of revenue by fiscal 2026, Splunk (with synergies) having 38% operating margin in fiscal 2026. The analyst projects $0.02 EPS and $403 million free cash flow accretion for fiscal 2025 and $0.17 EPS and $1.2 billion free cash flow accretion for fiscal 2026.
Notably, his "Realistic Upside" case shows more stable growth at Splunk given where it is at on its transition and more material cost synergies that result in over 50% fiscal 2026 Splunk-only operating margin and $0.37 EPS and $1.8 billion free cash flow in fiscal 2026 accretion.
The analyst lauded Cisco's increasing visibility, Splunk's impact, Cat9K renewals, a refresh of old and end-of-life systems, consistent capital return program installed, estimate reset for core Cisco, potential for AI via SiliconOne or datacenter Ethernet systems, and valuation.
However, Fish also red-flagged Cisco's exposure to networking's down-cycle outside of AI, too little relative exposure to the Cloud vertical and high-end data center switches, management's downward revision of forward numbers over the last four quarters, and Organic Security and Collaboration are struggling.
Fish projects third-quarter revenue and EPS of $12.7 billion and $0.86.
Cisco stock lost close to 4% last year. Investors can gain exposure to the stock via First Trust NASDAQ Cybersecurity ETF
Price Action: CSCO shares traded higher by 0.03% at $49.15 on the last check Wednesday.
