raisbeckfoto
Despite being reported on final 12 months, Cisco Systems (NASDAQ:CSCO) shocked Wall Street this week when it stated it supposed to purchase cybersecurity agency Splunk (NASDAQ:SPLK) for $28B.
While some buyers have considered the deal to enhance the corporate’s annual recurring income and enhance its monetary profile as a constructive, the collective response on Wall Street has been akin to the shrug emoji.
Needham analyst Alex Henderson, who has a maintain ranking on Cisco (CSCO), stated the deal is not going to clear up Cisco’s issues, due partly to the corporate’s “poor” observe document of realizing synergies with previous acquisitions.
“Cisco’s Security business, despite numerous acquisitions, is still mainly not Cloud-Native or Micro-Services-based, and Cisco is losing share in Security,” Henderson wrote in an investor word, including that he expects Splunk’s development decelerate over the following a number of years.
“We see the deal as a merger of two legacy players in a category where new competition is emerging from strong platform Security names such as CrowdStrike’s (CRWD) LogScale and Palo Alto (PANW), which are directly targeting the legacy [security information and event management] market,” he added.
Jefferies analyst George Notter was a bit extra constructive on the deal, highlighting the give attention to information extraction and evaluation, Splunk’s specialty. However, the deal may even require some integration Notter stated, which Cisco has had a blended historical past with.
The deal will lead to combining of Cisco’s Extended Detection & Response platform and VAS Secure Insight instruments with Splunk’s Security Information & Event Management instruments, which Notter famous the corporate didn’t present a timetable for.
Notter additionally identified that whereas Cisco has greater than 80,000 channel companions world wide, Splunk is essentially primarily based within the U.S. (two-thirds of income are home) and it has an “immature” gross sales channel technique.
“Nonetheless, the strategic nature of the deal, the ability to accelerate Cisco’s growth rate, and the ability to further the transition to recurring revenue models make this deal worthwhile, in our view,” Notter wrote in a word.
Notter has a buy ranking and $59.50 worth goal on Cisco shares.
KeyBanc Capital Markets analyst Thomas Blakey, who has a sector-weight ranking on Cisco (CSCO), stated the deal is a constructive for Cisco (CSCO).
“We view this transaction positively for Cisco as it leverages the company’s current position … and adds to its solution sets that are benefiting from secular trends in security, AI, and observability.
Blakey added that the deal will allow both companies to enable new and existing customers to get additional value from across the IT stack.
And while the execution risk for the merger is “comparatively excessive” given the size and competitiveness of the markets where Cisco (CSCO) and Splunk (SPLK) intersect, as well as integration risk, Blakey said there are “[long-term] deserves” for the deal, given that he expects the synergies are more targeted towards growing revenue and less about cutting expenses.
