Should You Buy The Dip In Cisco?

Cisco Systems, Inc. CSCO reported better-than-expected fiscal second-quarter results that were overshadowed by a weak outlook. As the stock trades lower, Wall Street analysts were quick to weigh in if investors should buy the dip or not.

BofA: In-Line With 'Weak' Expectations

Cisco's earnings was consistent with management's already "weak" guidance, Bank of America analyst Tal Liani wrote in a note. Specifically, revenue fell 3.5% year-over-year as major product categories like Infrastructure Platforms and Applications were down.

Looking forward Cisco will face difficult comparisons in the coming quarters and will need to find new cycles in core activities to regain any momentum, the analyst wrote.

Related Link: Cisco Systems Reports Q2 Earnings Beat

Oppenheimer: The Positives And Negatives

Cisco's in-line report was followed up with in-line guidance as management sees continued soft demand conditions and weakness across each vertical and region, Oppenheimer analyst Ittai Kidron wrote in a note.

Positive takeaways from the quarter include encouraging new product announcements, product deferred revenue growth improved, gross margin and operating margin each expanded, and and subscription software progressed.

On the other hand, negative readouts from the quarter include Infrastructure Platform declined 8.4% year-over-year, Applications revenue declined and management sees a challenging macro environment.

Raymond James: 'Improving Tone'

Cisco was expected to guide better than revenue down at 2.5% year-over-year at the midpoint for the coming quarter although management expressed an "improving tone," Raymond James analyst Simon Leopold wrote in a note. While management also talked about challenges, the research firm's first-hand checks suggest December's performance improved from November.

Needham: Guidance Could Have Been Worse

Cisco investors should be "breathing a sigh of relief" as management's 1.5% to 3.5% revenue decline guide is "relatively good news," Needham analyst Alex Henderson wrote in a note. By comparison, the company showed a 6% decline in Product orders in the reported quarter and a 4% decline in the prior quarter.

"Cisco could easily have used the Coronavirus as a reason for a much more cautious guide," Henderson wrote. "Instead, management noted an improvement in purchasing sentiment later in the quarter and offered an expectation that demand was set to pick up as the year progressed."

Baird: 'Restart Growth'

Cisco continues to face an opportunity to use its portfolio to "restart growth" despite another quarter of declining year-over-year orders, Baird analyst Jonathan Ruykhaver wrote in a note. The company could take advantage of potential tailwinds including WiFi 6 and 5G.

"We see Cisco continuing to drive a technology portfolio from DC into campus to cloud and branch, leveraging value-added software across application, network and security to provide emerging enterprise needs for agile compute environments," Ruykhaver wrote.

CSCO Ratings And Price Targets

• BofA maintains at Neutral with a $52 price target.
• Oppenheimer maintains at Outperform with a $55 price target.
• Raymond James maintains at Outperform with a price target lowered from 455 to $54.
• Needham maintains at Hold with no price target.
• Baird mainatins at Outperform with a price target lifted from $52 to $55.

Shares of Cisco were trading lower by 5.4% at $47.21.

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