Technology

What Analysts Are Saying About Cisco After Earnings

Chris Lange

Published: August 13, 2020 1:16 pm

Cisco Systems Inc. (NASDAQ: CSCO) released fiscal fourth-quarter financial results after markets closed Wednesday. While analysts were fairly positive, the weaker-than-expected guidance did pull targets down.

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

Cisco said that it had $0.80 in earnings per share (EPS) and $12.2 billion in revenue, which compared with consensus estimates of $0.74 in EPS and revenue of $12.08 billion. In the same period of last year, Cisco said it had EPS of $0.83 and $13.43 billion in revenue.

In the latest quarter, total revenue decreased 9% year over year, with product revenue down 13% and service revenue flat. Revenue by geographic segment was: Americas down 12%, EMEA down 6% and APJC down 7%. Product revenue performance was led by growth in Security, up 10%. Infrastructure Platforms revenue was down 16% and Applications revenue was down 9%.

Deferred revenue was $20.4 billion, up 11% in total, with deferred product revenue up 17%. Deferred service revenue was up 7%.

Looking ahead to the fiscal first quarter, the company expects to see EPS of $0.69 to $0.74 and revenues declining  9% to 11% year over year. Consensus estimates call for $0.76 in EPS and $12.25 billion in revenue for the quarter.

Credit Suisse reiterated a Neutral rating and raised its price target to $45 from $41. The brokerage firm made this call after Cisco had disappointing sales guidance, even though it beat earnings expectations, and even while the company’s chief financial officer is stepping down while the company pursues aggressive cost cuts yet again. Credit Suisse further detailed:

Overall, we remain Neutral on CSCO focusing on three factors: 1) CSCO continues to be dominant across numerous networking equipment end markets but faces pressure from SP and enterprise spending; 2) COVID-19 and WFH movement putting pressure on campus product groups that contribute high margins; and 3) ANET’s and JNPR’s recent entry into campus switching and WLAN pose further pressure on CSCO market position.

BofA Securities reiterated a Buy rating but cut its price objective to $52 from $55. The firm cited the disappointing guidance, but it noted growth acceleration and easier comps. BofA Securities remains constructive as it sees 5G, 400G, Optical and WiFi 6 driving growth in 2021 once the macro environment stabilizes.

Morningstar said:

Narrow-moat Cisco Systems’ 10% year-over-year revenue decline in the fourth quarter was slightly ahead of CapIQ consensus estimates, and the company performed well on the bottom line. However, management’s guidance for the September quarter was weaker than we expected as Cisco does not currently see much spending improvement from a quarter ago. Although Cisco commented that its largest enterprise customers were a pocket of strength in the quarter, broad-based spending weakness by small to medium businesses impacted overall performance. Cisco is taking the demand lull as an opportunity to right size, with a plan to remove over $1 billion in costs, and realign development resources into higher growth strategic areas. While we expect demand weakness to continue impacting Cisco in the near term, the company’s product portfolio strategy, solid operating profile, and balance sheet give us confidence in the longer term. We are maintaining our $48 fair value estimate and view shares as fairly valued.

Here’s what a few other analysts said after the report:

• JPMorgan reiterated it at Neutral and lowered its target to $46 from $50.
• William Blair reiterated a Market Perform rating.
• Cowen cut its price target from $60 to $55.
• Jefferies cut its target price to $46 from $50.
• RBC raised its price target to $48 from $47.

Cisco Systems stock traded down about 11% to $42.71 on Thursday, in a 52-week range of $32.40 to $50.30. The consensus price target is $49.62.

24/7 Wall St.
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