Investing.com -- On February 19, 2025, S&P Global (NYSE:SPGI) Ratings assigned an ’AA-’ issue-level rating to Cisco Systems Inc (NASDAQ:CSCO).’s proposed unsecured notes, which the company plans to use to pay down part of its commercial paper. This rating aligns with the ’AA-’ issuer credit rating Cisco holds, as well as the ’AA-’ ratings on its existing unsecured notes. This is because there are no significant elements of subordination risk in Cisco’s capital structure.
Currently, S&P Global Ratings’ adjusted leverage for Cisco is 0.9x, which is near the downgrade threshold of 1x. The ratings agency anticipates that Cisco will end fiscal 2025 (ending in July) at 0.8x and 2026 at 0.7x as the company recovers from an inventory correction in 2024. This would leave Cisco with a debt cushion of around $5 billion based on the 2026 EBITDA forecast.
In its recent earnings report, Cisco reported revenues of $14.0 billion, slightly over its guidance range. Product orders increased by 11% organically (excluding Splunk (NASDAQ:SPLK)), marking the highest organic growth since the quarter ending in January 2022. The company showed strong momentum in AI infrastructure, securing over $350 million in orders during the quarter and reaching approximately $700 million for the first half of fiscal 2025. This puts Cisco on course to surpass its target of $1 billion in AI orders for the year.
The service provider and cloud segment reported organic order growth of 63%, with three of the top six webscalers increasing orders by triple digits and two others surpassing 50%. Campus switching also saw strong performance, with double-digit demand growth seen alongside enterprise routing and wireless solutions.
Cisco has increased the lower end of its fiscal 2025 growth guidance to 4.1%, up from 2.8% in the previous quarter. However, Cisco expects next quarter’s gross margin to be between 67%-68%, compared to 68.7% last quarter. This is partially due to the potential impact from tariffs including the delayed 25% on Mexican imports and excluding any mitigations. Cisco’s supply chain team is currently considering various mitigation strategies before deciding on price increases.
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