Cisco rises on strong Q2, guidance, but analysts debate health of backlog
Justin Sullivan/Getty Images News

Cisco Systems (NASDAQ:CSCO) rose nearly 4% in premarket trading on Thursday after the company issued strong second-quarter results and a healthy third-quarter forecast, though Wall Street analysts debated the health of the networking giant's backlog.
Jefferies analyst George Notter, who has a buy rating on Cisco (CSCO), said the results and guidance were "fine," but investors should "put the guidance into perspective given the supply chain normalization going on."
In addition, Notter noted that while Cisco's (CSCO) management team, led by CEO Chuck Robbins, provided "very good" commentary about the state of the global economy, the backlog is something to keep an eye on.
Notter estimated the company's backlog was roughly $14B at the end of January, with Cisco (CSCO) expecting it to be around $8B to $10B, roughly twice the normal level. Cisco (CSCO) is expecting around $5B in sales growth this year, with between 50% and 90% coming from reducing its backlog.
"As we think about Cisco, we still believe the business is a normalized 2-4% annual grower (with a point of that growth coming from M&A) â just as theyâve been over the past decade," Notter added.
Notter raised his fiscal 2024 revenue and earnings per share estimates on Cisco (CSCO) after the results.
Competitors Arista Networks (ANET) and Juniper Networks (JNPR) were little changed in premarket trading on Thursday.
Looking ahead, Cisco (CSCO) said it expects third-quarter sales to rise between 11% and 13% year-over-year. 
Cisco (CSCO) also raised its full-year earnings outlook, as it now expects to earn between $3.73 and $3.78 per share, up from a prior view of $3.51 to $3.58 per share.
Raymond James analyst Simon Leopold, who has an outperform rating on Cisco (CSCO) and boosted his per-share price target to $63 from $59, said he was "pleasantly surprised" by the strong outlook, but also caveated that by a quicker reduction in the backlog.
"Order declines and reductions in backlog are part of normalization and should be expected, but feed some bearish arguments," Leopold wrote. "We see the software shift and margin improvement favorably, and the upward revisions justify stock appreciation." 
J.P. Morgan analyst Samik Chatterjee, who has a neutral rating and $55 per-share price target on Cisco (CSCO), said the guidance is setting up for "material upside," but there is a limitation as to how high the earnings multiple can go.
"Ciscoâs earnings outlook raise is how we would have imagined the easing supply backdrop to support Networking equipment companies in recording strong growth in 2023 supported by robust backlogs, even as the macro remains uncertain, heading into this calendar year," Chatterjee explained.
Chatterjee added that the magnitude of the upside nonetheless, "is raising questions around sustainability of growth."
Earlier this month, Cisco (CSCO) was listed among the top tech, media and telecom stocks for 2023 by Bank of America.