Cisco Systems, Inc. (CSCO) Lowers Revenue Growth Target

Cantor Fitzgerald’s analysts are reportedly attending Cisco Systems, Inc. (NASDAQ:CSCO)’s annual Financial Analyst Conference (FAC) today in NYC, and Frank Calderoni (CFO) delivered the company’s financial presentation, which included reduced growth targets.

Cisco lowers rev growth target

During Frank Calderoni’s financial presentation this morning, Cisco lowered its long-term revenue growth outlook to 3-6% over the next 3-5 years from prior expectations of up 5-7%. Last week, analysts indicated that Cisco Systems, Inc. (NASDAQ:CSCO)’s growth over the past three years through their FY:14 estimate equates to just 2% per annum, making the 5-7% annual growth target difficult to achieve. Analysts believe the lower end of Cisco’s revised growth target of up 3-6% is reasonable; however, they continue to believe the company should pull its sales growth objectives and focus on profit growth.

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Breaking down revenue growth at Cisco

Cisco Systems, Inc. (NASDAQ:CSCO) expects sales in the data center to grow by 20-25% over the next 3-5 years from $2 billion in FY:13, and cloud is targeted at 12-18% annual sales growth over the next 3-5 years from $4 billion in FY:13, while mobility is expected to increase by 9-13% per annum from $3 billion in FY:13.

Security is targeted at 10-15% annual sales growth over the next 3-5 years from the $1 billion in revenue generated in FY:13, and service revenue is expected to grow by 7-10% per annum from $11 billion in FY:13.

Emerging market sales are projected to grow by 6-10% per annum over the next 3-5 years from $10 billion in FY:13. Software sales are expected to increase by 10-15% per annum over the next 3-5 years from $8 billion in FY:13. Finally, the core businesses (i.e., switching and routing) is projected to grow by just 0-1% over the next 3-5 years.

Cisco maintains operating margin objective but lowers EPS

In terms of profitability, Cisco maintained its operating margin target in the high-20% range (vs. 28.1% in FY:13) over the next 3-5 years, and Cisco Systems, Inc. (NASDAQ:CSCO) remains committed to an attractive return of cash to shareholders. That said, Cisco Systems, Inc. (NASDAQ:CSCO) lowered its annual EPS growth guidance to up 5-7% growth over the next 3-5 years versus prior expectations of annual EPS growth of 7-9%, and analysts at Cantor believe this lowered guidance is more reasonable and achievable.

Cisco Systems’ valuation

Cantor’s price target of $26.00 is based on nearly 11x firm’s CY:14 pro forma EPS estimate (adjusted for interest income/expense), plus Cisco Systems, Inc. (NASDAQ:CSCO)’s net cash per share of $5.89.