What Analysts Are Saying After Cisco’s Earnings

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Cisco Systems, Inc. (NASDAQ: CSCO) reported its fiscal third-quarter financial results after markets closed Wednesday. Ultimately the company met estimates for the quarter but this was not enough to offset guidance which cratered the stock in Thursday’s session.

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

The networking giant said that it had $0.60 in earnings per share (EPS) and $11.9 billion in revenue, which compares with consensus estimates from Thomson Reuters that called for $0.58 in EPS and $11.9 billion in revenue. The same period from last year had $0.57 in EPS and $12.0 billion in revenue.

Deferred revenue totaled $17.3 billion, up 13% from last year, with deferred product revenue up 26%, driven largely by subscription-based and software offerings. Deferred service revenue was up 7%.

In terms of the outlook for the coming quarter, the company expects to see EPS in the range of $0.60 to $0.62 and revenues declining between 4% and 6% from the same period last year. The consensus estimates are calling for $0.62 in EPS and $12.51 billion in revenue.

Credit Suisse said in its report on Cisco:

In our M&A analysis, we see long term CSCO EPS power of $3.30-$3.50, > 40% above current levels, of which 22% is driven by buyback with the rest from M&A accretion. Our standalone base case allows for continued growth in areas such as Security and Services to offset Switching and Data Center share loss, and GM [gross margin] pressure (we explicitly assume a 1000bps long term contraction in switching GM), Even in such a scenario we see standalone EPS trending towards $2.50, suggesting upside. Our TP [target price] of $40 is a blended average of these scenarios as well as our long term DCF [distributable cash flow].

JMP Securities has a Market Perform rating. The firm commented:

We maintain our Market Perform rating on Cisco Systems after the company reported modest F3Q17 EPS and revenue upside, but guided F4Q17 EPS and revenues below consensus, leading the stock to trade down ~8% in the aftermarket. We note Cisco had a 14-week quarter in F3Q16, compared to a normal 13-week quarter this year, creating a difficult compare that negatively impacted revenue growth by 2%. In our view, highlights from the quarter include: 1) Cisco generated 51% growth in deferred revenue for software and subscription sales, in line with the prior quarter, demonstrating a continued shift toward software and away from hardware; 2) data center switching growth accelerated to 42% Y/Y from 28% in the prior quarter, the best growth in a year, which we think bodes well for Arista Networks..

A few other analysts weighed in on the stock:

  • FBN Securities retained its Outperform rating but lowered its price target to $35 from $37.
  • Morgan Stanley reiterated an Overweight rating and kept its $39 price target.
  • Barclays reiterated its Overweight rating with a $34 price target.
  • BMO Capital Markets reiterated its Market Perform rating but cut its target price to $32 from $35.
  • Raymond James reiterated its Outperform rating with a $36 price target.

Shares of Cisco were last trading down 8% at $31.14, with a consensus analyst price target of $36.09 and a 52-week trading range of $27.13 to $34.60.