Cisco Systems Inc. (NASDAQ: CSCO) was up 0.2% at $48.46 on Wednesday ahead of earnings, but the shares were down about 5.5% in Thursday’s premarket trading after guidance indicated its first quarterly revenue decline in more than two years. The company’s earnings report also failed to show any great spending climate, which begs the question about how U.S. technology giants can grow if they are effectively not in China.
While adjusted earnings of $0.84 per share and revenues of $13.16 billion slightly exceeded the consensus estimates of $0.81 EPS and $13.05 billion in revenues, its guidance for the second quarter showing a 4% drop from the prior-year period was handily short of the expected growth of over 2%.
Merrill Lynch maintained its Buy rating but lowered its price objective to $56 from $62. According to Merrill Lynch, macro weakness weighs on all segments and geographies was the theme. The firm is sticking by its long-term view that Cisco is a Buy on its strategy and execution, and the firm does still see long-term growth from Cisco’s key product categories like campus switching and security. Cisco’s recent acquisition of Acacia brings market-leading coherent optics in-house and positions Cisco for 400GE upgrade cycles while strengthening its ability to
target data center/hyperscale spending.
Merrill Lynch also noted that enterprise and commercial orders were each down 5% from a year earlier and that service provider orders were down 13% from a year earlier. On the overall geographic weakness being widespread, the Americas and EMEA orders were each down 3% and Asia/Japan/China orders were down by 5%.
24/7 Wall St. has tracked more than a dozen analyst calls on the shares, and most of the firms have maintained or reiterated their official ratings but lowered their target prices on the news.
- Barclays maintained its Equal Weight rating and cut its target to $47 from $51.
- Citigroup maintained its Buy rating but cut its target price to $55 from $57.
- Cowen maintained its Outperform rating but lowered its target to $59 from $61.
- Evercore ISI maintained its Outperform rating but lowered its target to $55 from $60.
- Jefferies maintained it as a Buy but cut its target price to $52 from $54.
- JPMorgan maintained its Overweight rating but trimmed its target to $58 from $62.
- KeyBanc Capital Markets maintained it as Overweight but cut the target to $52 from $54.
- Morgan Stanley reiterated its Equal Weight rating and lowered its target to $48 from $49.
- Nomura/Instinet reiterated it as Neutral while cutting its target to $45 from $47.
- Oppenheimer maintained its Outperform rating but cut its target to $55 from $57.
- Piper Jaffray maintained its Neutral rating but cut the price target to $50 from $51.
- Raymond James maintained it as Outperform and lowered its target to $55 from $59.
- Robert W. Baird maintained it as Outperform but lowered its target to $52 from $54.
- Wells Fargo maintained its Outperform rating but cut its target to $58 from $60.
- UBS maintained its Buy rating but trimmed its target price to $54 from $58.
One big question for Cisco going forward will be the global economic picture. If tariffs and technology exit the argument from the China trade war, then Cisco may get a leg up, and if the global growth picture stops sliding it will get a leg up. Any downtick from the domestic and global economy in 2020 may create a need to further adjust targets and estimates, and that might come with more official analyst rating downgrades.
Cisco shares were down about 7.3% at $44.95 after 30 minutes of trading on Thursday, and its 52-week trading range is $40.25 to $58.26. Cisco had a consensus analyst target price of $54.17, and tech-dividend investors who are just now buying into the shares will get close to a 3.1% dividend yield.
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