Why an Earnings Beat Isn’t Enough for This Top Dow Stock

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Cisco Systems Inc. (NASDAQ: CSCO) released its fiscal third-quarter financial results after the markets closed on Wednesday. This has been one of the top Dow Jones industrials stocks for most of 2018 so far, and while this momentum has been impressive, earnings need to be equally — or even more — impressive to keep investors satisfied. While Cisco did top estimates for this quarter, it just didn’t seem to be enough for investors.

The company said that it had $0.66 in earnings per share (EPS) on $12.5 billion in revenue, which compares with consensus estimates from Thomson Reuters of $0.65 in EPS on revenue of $12.44 billion. The same period of last year reportedly had EPS of $0.60 and $11.94 billion in revenue.

During the quarter, deferred revenue was $19.0 billion, up 9% in total, with deferred product revenue up 18% and deferred service revenue up 4%. The portion of deferred product revenue related to recurring software and subscription offers increased 29%.

In terms of the revenue breakdown Cisco had:

  • Product revenues increased 4.7% year over year to $9.30 billion.
  • Service revenues increased 3.4% to $3.16 billion.

Looking ahead to the fiscal fourth quarter, the company expects to see EPS between $0.68 and $0.70 and revenues growing in the range of 4% to 6% year over year. The consensus estimates call for $0.69 in EPS on $12.73 billion in revenue.

On the books, Cisco cash, cash equivalents and investments totaled $54.4 billion at the end of the quarter, down from $70.5 billion at the end of the previous fiscal year.

Chuck Robbins, board chair and chief executive of Cisco, commented:

We are executing well against our strategy, our innovation pipeline has never been stronger, and we continue to make great progress in transforming towards more software and subscriptions. I am confident with our position in the industry and the impact we will continue to drive with our customers.

Shares of Cisco closed Wednesday at $45.16, with a consensus analyst price target of $48.85 and a 52-week trading range of $30.36 to $46.37. Following the announcement, the stock was down 4% at $43.33 in early trading indications Thursday.