Why Investors Should Take Cisco's January Guidance With A Grain Of Salt

Jefferies’ George C. Notter that the guidance provided by Cisco Systems, Inc. CSCO should be taken with “a grain of salt,” especially given the company’s history for conservatism.

Notter maintains a Buy rating on the company, with a price target of $35.

“Investors should take “a grain of salt” with the January guidance given: 1) the disruption in near-term sales associated with Cisco’s move toward SaaS/ recurring revenue; and 2) their propensity to sandbag guidance from time to time,” the analyst went on to say.

Solid Results

Cisco Systems reported robust October quarter results, with overall sales of $12.35 billion and EPS of $0.61, ahead of the consensus expectations.

While profitability was significantly stronger than anticipated, operating margins were the best since 2005.

Weak Guidance

Management guided to sales decline of 2–4 percent year-on-year for the January quarter, after normalizing for the divestiture of the STB business.

Cisco Systems also guidance to EPS of $0.55–$0.57, below the consensus forecast of $0.59.

“A weaker Service Provider spending environment is driving the reduced guidance,” Notter mentioned.

The company has been strengthening its wireless and security businesses to mitigate the weakness in its traditional switching business, which is also facing increasing competition.

At last check, Cisco was down 5.67 percent at $29.78.