Cisco Systems' (NASDAQ:CSCO) better-than-expected fiscal third-quarter results and guidance demonstrated to Wall Street that the networking giant seems to have gotten its excess inventory issues under control and there are signs of growth.

Shares rose 3.1% in premarket trading.

"Against investor caution around degree of inventory digestion currently in networking, CSCO beat FQ3 expectations slightly, with orders much better than expected," Morgan Stanley analyst Meta Marshall wrote in an investor note.

Marshall, who has an Overweight rating and $58 price target on Cisco, added that earnings estimates for fiscal 2025 are "achievable" in light of an "overly conservative Splunk integration" and it bodes well for the company going forward.

Other firms agreed with Morgan Stanley's sentiment, including Bank of America, which described the quarterly results as "solid," though expectations were low amid concerns about Splunk.

"Opportunities exist with Cisco’s optical and networking offerings and Cisco noted it participates in three of the four largest trials," Bank of America analysts led by Tal Liani wrote in an investor note. "Splunk’s integration is also going well, and management expects to see the impact of its wide distribution next year. Taking Cisco’s ~3% FY25 revenue growth guidance and excluding Splunk and $4.5bn in FY24 backlog contribution, management implicitly expects Cisco’s core revenue ex-Splunk to recover to 5% growth next year."

Bank of America reiterated its Buy rating and $60 price target on Cisco.

Digestion of excess customer inventory is expected to end by next quarter, which Jefferies analyst George Notter said was "the best part" of Cisco's earnings call.

"As we think about Cisco, we still believe the business is a 1-3% normalized organic annual grower – just as they’ve been over the past decade," Notter wrote. "Unfortunately, they won’t realize that growth in fiscal 2024 as the customers digest inventory. That inventory digestion will wrap up at July quarter end – with the business bouncing back to higher revenue run rates in fiscal 2025. In the meantime, they continue to build a more stable, predictable business as they emphasize software and recurring revenue streams."

Notter has a Buy rating on Cisco and moved his price target to $56 from $55.

Financial results, guidance

For the period ending April 27, Cisco earned an adjusted $0.88 per share on $12.7B in revenue. Service revenue for the period came in at $3.68B, while product revenue came in at $9.02B. Adjusted operating margin for the period came in at 34.2% while it ended the period with $38.8B in remaining performance obligations.

A consensus of analysts expected the company to earn $0.82 per share on $12.63B in revenue.

Looking to the fiscal fourth-quarter, Cisco expects to earn between $0.84 and $0.86 per adjusted share, with sales between $13.4B and $13.6B. Adjusted gross margins for the period are expected to be between 66.5% and 67.5%.

Analysts expected adjusted earnings of $0.84 per share and $13.54B in revenue for the fiscal fourth quarter.

For the full-year, Cisco now sees revenue between $53.6B and $53.8B, up from a prior range of $51.5B to $52.5B. Analysts expected $53.63B in full-year sales.

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