Shares of Cisco Systems Inc. slipped 0.2% in premarket trading, deviating from the broader stock market rally, as the networking giant was downgraded by Raymond James. The downgrade by analyst Simon Leopold raised concerns about a slowdown in sales in the near term.
Concerns over Declining Campus Sales
Leopold cut his rating on Cisco to Market Perform from Outperform as he believes declining campus sales will contribute to an overall decline in sales, which is estimated to be about one-third of the sales decline in 2024. This decrease in campus sales is expected to have a significant impact on the company’s performance.
Acquisition of Splunk Inc. Raises Questions
Leopold also discussed Cisco’s recent acquisition of Splunk Inc., which amounted to $28 billion. While he acknowledged that the acquisition made strategic sense, he expressed concerns about a lack of differentiation and reduced options in the face of mounting competition.
Outlook and Potential Sales Decline
Preliminary checks indicate that Cisco’s performance in the October quarter will likely meet expectations. However, Leopold foresees potential risks to the outlook as he expects sales to suffer a worse than seasonal decline in its quarter through January.
Cisco is scheduled to report its fiscal first-quarter results on November 15, which covers the period through October.
Discrepancy in Stock Performance
It is noteworthy that Cisco’s stock dip on Monday contradicts the positive trend in the futures market. While futures for the Dow Jones Industrial Average rallied 219 points or 0.7%, and futures for the Nasdaq 100 climbed 0.9%, Cisco experienced a slight decline.
Overall, Raymond James’ downgrade has raised concerns about Cisco’s sales performance and its ability to stand out in a competitive market. Attention will be focused on Cisco’s upcoming quarterly results to assess the impact of these challenges.