Cisco’s Hold Rating: Balancing Post-Acquisition Growth Prospects with Integration Risks

Needham analyst Alex Henderson has maintained their neutral stance on CSCO stock, giving a Hold rating today.

Alex Henderson has given his Hold rating due to a combination of factors surrounding Cisco Systems’ recent acquisition of Splunk. The acquisition presents a nuanced outlook, with Henderson noting that while the deal is expected to become financially beneficial in FY25, it initially dilutes value. He acknowledges that revenue growth, rather than cost synergies, will likely drive the upturn as Cisco leverages its extensive global network to boost Splunk’s reach.

However, Henderson points out several concerns that justify the Hold rating. He sees Splunk as being susceptible to competitive pressures, which may lead to pricing challenges and potential loss of market share. The integration of Splunk with Cisco’s existing networking and security solutions is also seen as complex, with a significant risk of losing key personnel during the process. Additionally, he emphasizes the importance of distinguishing between organic growth and reported growth in the coming fiscal year to accurately assess the company’s performance post-acquisition.

In another report released today, Deutsche Bank also maintained a Hold rating on the stock with a $52.00 price target.

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Cisco Systems (CSCO) Company Description:

Cisco offers a broad range of technologies across networking, security, collaboration, applications and the cloud. It manufactures and sells Internet Protocol (IP)-based networking and other products related to the communications and IT industry and also provides associated services. The company was founded by Sandra Lerner and Leonard Bosack on December 10, 1984 and is headquartered in San Jose, CA.