Shares of Cisco Systems Inc. (CSCO) experienced a decline of 0.9% in Wednesday morning trading following an analyst rating adjustment by Tal Liani from BofA Global Research. Liani has downgraded the networking stock from a buy rating to neutral.

Lowered Expectations for Product-Revenue Growth

Liani's decision to lower the rating is based on his observation that consensus expectations predict a soft landing for Cisco's product-revenue growth. However, these expectations also indicate much higher product-revenue levels for fiscal years 2024 and 2025 compared to historical performance.

Cisco's Historical Product Revenue and Consensus Expectations

Since fiscal year 2012, Cisco has consistently generated $36 billion to $39 billion in product revenue annually. Nevertheless, consensus expectations for fiscal year 2023 forecast approximately $43 billion in product revenue, or around $37 billion when excluding backlog contributions.

Questionable Estimates and Potential Disappointment

Liani highlights that although the backlog is expected to return to historical levels by the second half of 2024, analysts on Wall Street continue to maintain high estimates for fiscal years 2024 and 2025 at $44.2 billion and $45.3 billion respectively. These figures assume either a sharp recovery in orders or suggest potential risk for disappointment in the magnitude of approximately 7% to 14%.

Analyst's Price Objective

Despite the revision in rating, Tal Liani maintains a price objective of $56 on Cisco shares, indicating his belief in the company's value despite the concerns raised.

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