Cisco Systems, Inc. Falls Post-Earnings, Analyst Views Mixed

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Cisco Systems, Inc. (NASDAQ:CSCO) edged out earnings estimates for its fiscal fourth quarter, posting non-GAAP earnings of 63 cents per share on $12.6 billion in revenue. Consensus estimates stood at $12.57 billion in sales and non-GAAP earnings of 60 cents per share. Analysts who were bullish before the earnings report are still bullish and in some cases raised their price targets, while those who were on the sidelines remain on the sidelines.

Drexel Hamilton ups price target for Cisco Systems

Cisco Systems said product orders increased 1% year over year, and its product book-to-bill ratio was more than 1x. The company expects sales in the current quarter to be between a 1% decline and a 1% increase year over year, which implies a range of $12.15 billion to $12.39 billion, excluding $411 million in CPE sales. This range is very weak compared to the consensus of $12.52 billion. The networking equipment maker expects pro forma earnings to be between 58 cents and 60 cents per share, compared to the consensus of 60 cents per share.

Despite the weak guide, Drexel Hamilton analyst Brian White bumped up his price target for Cisco Systems from $36 to $37 per share and reiterated his Buy rating. He called the company’s execution in its fourth fiscal quarter “excellent” and its outlook for the first fiscal quarter “good enough.” He also described its valuation as “depressed.”

Cisco said on the earnings call that it experienced weakness among service provider customers and challenges in emerging markets. However, its enterprise business improved. White also praised the company’s margins as its operating margin hit its highest level since the second quarter of its fiscal 2006. Additionally, the company announced plans to cut 5,500 jobs as part of a restructuring plan. This is a much smaller job cut than what was reported by CRN (citing unnamed sources) before the official announcement.

White wasn’t the only analyst to up his price target for Cisco Systems after last night’s report. Pacific Crest analysts bumped up their target from $30 to $33 per share.

Wunderlich, Needham still on the sidelines

Wunderlich analyst Matthew Robison maintained his Hold rating and $27 price target on Cisco Systems following last night’s earnings report. Instead of high praise for the company, he called its fourth quarter execution a “steady performance against low sales expectations.” He noted that orders in the Americas slowed, while China orders declined. He also noted that the better-than-expected gross margin on product sales drove the earnings beat. As expected, Security and Collaboration experienced the greatest growth. Additionally, switching and wireless beat his expectations.

Needham & Company analyst Alex Henderson also maintained his Hold rating on Cisco Systems after last night’s earnings report. He defined the execution as “respectable” but highlighted the soft guidance due to concerns about emerging markets and service provider customers. He also trimmed his revenue estimate but maintained his earnings per share estimate going forward. He seemed to question management’s business decisions relating to the job cuts and the decision to reinvest the savings.

“Call us old school, but shouldn’t a company cutting 7% of its staff see some benefit to EPS?” he asked rhetorically. Cisco announced it is cutting 5,500 positions and ‘reinvesting’ the benefits into its business. This is at a cost of $700 million.”

Cisco Systems shares slumped after last night’s earnings report before reversing course during regular trading hours on Thursday. The stock failed to enter the green by midday, hitting a ceiling and then heading back into a downward spiral. As of this writing, Cisco Systems shares are down 1.24% at $30.34.

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