Cisco stumbles on BofA downgrade, firm fears consensus is 'too high'
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Cisco Systems (NASDAQ:CSCO) shares stumbled nearly 2.8% in late trading on Wednesday as investment firm Bank of America downgraded the networking equipment giant on fears that Wall Street analysts estimates are too high. 
Analyst Tal Liani lowered the firm's rating on Cisco (CSCO) shares to neutral from buy, noting that Wall Street is looking for a "soft landing" in product revenue growth, based on estimates of 3% growth in fiscal 2024 and 2% in fiscal 2025, following 13% growth in fiscal 2023 and 6% in fiscal 2022. 
"However, these estimates lead to FY24/FY25 product revenues that are much higher than historical levels," Liani wrote in an investor note.
Liani added that since fiscal 2012, Cisco's (CSCO) product revenue has been between $36B and $39B, with 80% coming from Secure Agile Networks and internet for the future, which includes switches, routers, Wi-Fi and SD-WAN. However, analysts expect product revenue in fiscal 2023 to be roughly $43B, due in large to a $5B or $6B drawdown of backlog.
"Backlog is expected to return to its historical levels by [second-half of 2024], yet despite lack of further backlog support, the Street is maintaining high estimates for FY24/FY25 at $44.2bn and $45.3bn, respectively, which assumes a sharp order recovery or points to risk of disappointment in the magnitude of ~7%-14%," Liani added.
As such, Liani believes there will be an additional drawdown of the backlog of $4B in the first-half of 2024, which would bring it back to historical normal levels of $4B or $5B by the second-half of next year. As such, product revenue estimates may be between $3B and $6B too high, Liani posited. 
Analysts are largely bullish on Cisco (CSCO). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates CSCO a HOLD.
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