How Analysts View Cisco After Earnings and Layoffs

courtesy of Cisco Systems

Cisco Systems Inc. (NASDAQ: CSCO) reported its fiscal fourth-quarter financial results after the markets closed on Wednesday. This networking equipment giant delivered another strong quarter, closing out its fiscal year with the stock up over 10%. However everything was not roses as the company also confirmed rumors that significant layoffs were about to take place.

Considering all the excitement surrounding this stock, analysts couldn’t help but to weigh in and update their calls.

24/7 Wall St. has included a few highlights from the earnings report, as well as what analysts are saying after the fact.

The company said that it had $0.63 in earnings per share (EPS) on $12.64 billion in revenue. The consensus estimates from Thomson Reuters had called for $0.60 in EPS on revenue of $12.57 billion. The same period from last year reportedly had $0.59 in EPS on $12.84 billion in revenue.

In terms of the guidance for the coming quarter, the company expects EPS in the range of $0.58 to $0.60 and for revenue to be up or down, between −1% and 1%, from the first quarter in the previous fiscal year. The consensus estimates call for $0.60 in EPS on $12.5 billion in revenue in the fiscal first quarter.

Rumors arose earlier that Cisco would be cutting a significant number of its employees in a restructuring plan. The company confirmed the rumors, but the numbers were not as high as initially suspected. Cisco intends to eliminate up to 5,500 positions, which represents about 7% of its global workforce. The plan is expected to commence in the first quarter of 2017.

Oppenheimer noted that Cisco reported solid results, but guidance was a bit soft with a cautious commentary. The firm ultimately stuck with its Outperform rating and $34 price target. In its report Oppenheimer said:

Emerging market and service provider headwinds weighed after several quarters when Cisco delivered despite these headwinds. All things considered, we continue to be impressed with execution, reporting peak operating margin and good bookings growth. We’re positive on the company’s transition to a SaaS/software model, which continues to develop, with strong deferred revenue growth in these areas and resources shifting toward these areas. We think flexible net headcount reductions give Cisco room to deliver on earnings if macro deteriorates further, helping to derisk FY17 estimates. Buybacks and dividend yield offer strong protection to investors. Tweaking estimates to reflect outlook.

Credit Suisse’s Kulbinder Garcha reiterated an Underperform rating but raised the price target to $25 from $24. He detailed in his report:

Cisco returned to growth in switching in the quarter, growing +2% y/y. However, given the secular challenges in this segment, we fear this may not be sustainable. With service provider orders down 5% y/y and EM weakness, visibility remains mixed. We now assume total revenues of $49.6bn/$50.5bn and OM of 29.7%/29.4%, noting that the company appears to be at an operational peak. …  We increase our target price to $25 (from $24), implying a rough 10x multiple on our FY18 EPS est., accounting for restructuring and taxed net cash, which is reasonable in light of secular concerns the company faces.

At the same time a fair number of analysts updated their targets as well:

  • Argus reiterated a Buy rating and raised its price target to $37 from $34.
  • BMO has a Hold rating and raised its price target to $33 from $30.
  • Bernstein has an Outperform rating and raised its price target from $34 to $45.
  • Cowen has an Outperform rating and raised its target price to $40 from $39.
  • FBN has an Outperform rating and raised its price target to $35 from $32.
  • Independent Research has a Hold rating and raised its price target from $30 to $33.
  • Jefferies reiterated a Buy rating with a $35 price target, but note that target was raised a day ahead of earnings.
  • JMP maintained its Market Perform rating.
  • JPMorgan raised its price target from $28 to $29.
  • Pacific Crest reiterated an Overweight rating and increased the price target to $33 from $30.
  • Piper Jaffray has an Overweight rating and raised its price target to $34 from $30.
  • S&P Global downgraded it to Hold from Buy but raised the price target by $1 to $32.
  • Wunderlich reiterated a Hold rating with a $27 price target.

Shares ended last week at $30.52. The stock has a consensus analyst price target of $32.73 and a 52-week trading range of $22.46 to $31.25.

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