Shares in Cisco’s rivals, Juniper Networks and Arista Networks, took a hit following Cisco’s dismal outlook for the future. However, KeyBanc analysts suggest that the impact on these competitors may not be as severe as initially thought.
Cisco reported a slowdown in new product orders for its fiscal first quarter, attributing it to customers focusing on installing products after a period of strong deliveries. The company estimates that there are still one to two quarters’ worth of shipped product orders awaiting implementation by customers. As a result, product orders fell by 20%, with enterprise orders experiencing a 26% drop. Cisco’s guidance for the second quarter also fell below expectations.
This disappointing news had a negative effect on other networking stocks. Arista Networks fell by 2.4% before the opening bell on Thursday, while Juniper Networks experienced a 3.1% drop.
However, KeyBanc analysts believe that the impact on Cisco’s peers may be less negative than anticipated. They highlight that Cisco is essentially the market leader in specific segments, particularly Enterprise, and therefore any cuts made by Cisco may not have a significant read-across effect on Juniper and Arista.
Arista indicated during its recent analyst day that its Enterprise unit continues to grow at a rate higher than the corporate average through 2023, further supporting KeyBanc’s stance.
Despite the market reaction, Cisco’s stock experienced a significant tumble of 11% during premarket trading. Oppenheimer analysts maintain an Outperform rating on the stock and believe that there is still potential for growth. However, they caution investors to exercise patience and wait for Cisco’s integration of Splunk, which was announced as a $28 billion acquisition deal in September. They state that value investors who can afford to wait may see earnings per share (EPS) reach $4.50 to $5 post Splunk integration, potentially driving the stock into the mid-70s range. However, they have lowered their price target to $55 from $63.
In conclusion, Cisco’s weak outlook has had an impact on its competitors, but analysts suggest that the consequences may not be as dire as initially believed. Investors are advised to remain patient and to monitor Cisco’s integration of Splunk for future growth opportunities.
