A month has gone by since the last earnings report for Cisco Systems (CSCO). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cisco due for a breakout? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent drivers for Cisco Systems, Inc. before we dive into how investors and analysts have reacted as of late.
Cisco's Q4 Earnings Beat Estimates, Strong Networking Aids Revenues
Cisco Systems reported fourth-quarter fiscal 2026 non-GAAP earnings of $1.22 per share, up 23% year over year and beating the Zacks Consensus Estimate by 4.27%. Broad networking demand and operating leverage supported the year-over-year growth.
Revenues increased 18% year over year to $17.252 billion, topping the consensus mark by 2.36%. Product revenues increased 24% year over year.
Product orders increased 35% year over year (up 25% excluding hyperscalers), while annualized recurring revenue (ARR) reached $32.1 billion, up 3% year over year, highlighting broad demand.
Remaining performance obligations (RPO) totaled $46.7 billion, up 7% year over year, with product RPO rising 9%, while services RPO increased 6% year over year. Total software revenues increased 11% year over year to $6.183 billion, while subscription revenues represented 48% of total revenues.
CSCO’s Networking Growth Accelerates
Networking revenues surged 28% year over year to $9.791 billion. The increase reflected triple-digit growth in AI infrastructure, double-digit growth in data center switching and continued growth in campus networking.
Networking product orders jumped 40%, marking the eighth consecutive quarter of double-digit growth. Campus networking orders advanced 20%, while data center networking orders increased more than 35%. Wi-Fi 7 accounted for more than half of total wireless orders in the quarter.
Hyperscaler AI infrastructure orders totaled $4 billion in the fourth quarter, taking fiscal 2026 orders to $9.3 billion, roughly 4.5 times the fiscal 2025 level. The fiscal-year mix was approximately 60% Silicon One-based systems and 40% optics.
Cisco also secured three new hyperscaler design wins, covering P200-powered scale-across systems, G200-powered scale-out systems and an optical line system. AI infrastructure orders from neocloud, sovereign and enterprise customers exceeded $400 million in the quarter and totaled $1.3 billion for fiscal 2026.
CSCO Security and Software Trends Improve
Security revenues increased 14% year over year to $2.226 billion. The entire security portfolio, including Splunk, recorded double-digit order growth. Firewall orders increased more than 30%, while more than 1,500 customers purchased newer offerings such as Secure Access, XDR, Hypershield and AI Defense during the quarter.
Collaboration revenues advanced 12% to $1.167 billion, while Observability revenues rose 6% to $275 million. Services revenues were essentially flat at $3.793 billion.
Cisco Balances Margin Pressure With Leverage
Non-GAAP gross margin was 66.3%, down 210 basis points (bps) year over year. Product gross margin fell 270 bps to 64.8%, primarily due to a higher hardware mix and memory costs, partly offset by productivity improvements and price increases. Services gross margin improved 80 bps to 71.6%.
Non-GAAP operating expenses were $5.243 billion, up 5%, but declined to 30.4% of revenues from 34.1% a year earlier.
Consequently, non-GAAP operating margin expanded to 35.9% from 34.3%, demonstrating operating leverage despite gross-margin pressure.
CSCO Cash Flow and Recurring Metrics
Cash, cash equivalents and investments totaled $15.918 billion at the end of the fiscal fourth quarter compared with $16.6 billion at the end of the third quarter of fiscal 2026.
Operating cash flow increased 27% year over year to $5.386 billion.
CSCO returned $3.161 billion to shareholders through $1.502 billion of share repurchases and $1.659 billion of dividends. The current program has $8.1 billion under remaining authorization.
Cisco Sets Strong Fiscal 2027 Outlook
For the first quarter of fiscal 2027, Cisco expects revenues between $18 billion and $18.2 billion. Non-GAAP earnings are projected at $1.32-$1.34 per share, with non-GAAP gross margin of 65-66% and operating margin of 35.5-36.5%.
For fiscal 2027, Cisco projects revenues of $72.2-$73.4 billion and non-GAAP earnings of $5.05-$5.11 per share. Hyperscaler AI infrastructure revenues are expected to reach $7.5 billion, up from approximately $4 billion in fiscal 2026.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in estimates revision.
The consensus estimate has shifted 19.25% due to these changes.
VGM Scores
Currently, Cisco has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock has a score of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cisco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).