Cisco Systems Inc CSCO shares dropped 8% on Thursday after the company reported a sales miss and issued disappointing guidance.
Cisco reported fiscal first-quarter adjusted EPS of 82 cents, slightly above the 80 cents analysts were expecting. However, first-quarter revenue of $12.9 billion missed consensus analyst estimates of $12.98 billion. Revenue was up 8% from a year ago.
Cisco said Optimized Application Experience revenue, which includes data center networking switches, was up 10% to $5.97 billion. Internet for the Future revenue, including routed optical networking and public 5G products, was up 46% to $1.37 billion. Hybrid Work revenue, including Webex collaboration products, was down 7% to $1.11 billion.
Looking ahead, Cisco guided for full-fiscal-year EPS of between $3.38 and $3.45 and revenue growth of between 5% and 7%. Analysts had been expecting EPS of $3.42 and 6.1% revenue growth.
Legacy Business Strong: Bank of America analyst Tal Liani said software and subscription growth lagged in the quarter, but legacy routing, switching and optical revenue growth saved the quarter.
“While we think the stock lacks near-term catalysts until it could show better momentum in the focus areas, we also see signs for forthcoming improvements,” Liani wrote.
JMP analyst Erik Suppiger said 33% total order growth was up from 31% in the previous quarter.
“We view shares as fairly valued, and while we are encouraged by the shift to subscription as a strategic operational move, in terms of improving the predictability and recurring revenue mix, we remain concerned that Cisco’s expansiveness throughout a number of complex and saturated marketplaces yields execution risk, as indicated by the security category decline,” Suppiger wrote.
Raymond James analyst Simon Leopold said Cisco is running a marathon, not a sprint.
“The combination of order strength and price increases contribute to our higher estimates that we still perceive as conservative,” Leopold wrote.
Supply Chain Issues: Oppenheimer analyst Ittai Kidron said Cisco will be better-positioned in 2022 as supply chain issues are resolved.
“While supply chain headwinds are expected to persist, management pointed to stabilization, low cancellation rates, and still-strong pipeline as indicators of true underlying strength,” Kidron wrote.
KeyBanc analyst Steve Enders said Cisco shares seem fairly valued given its ongoing supply and margin risks.
“Supply chain continues to impact deliveries and revenue, with RPO up 18% vs. 33% product order growth as a portion of orders shows up in non-RPO backlog,” Enders wrote.
Impressive Product Orders: Needham analyst Alex Henderson said Cisco’s 33% product order growth was offset by margin pressures.
“Despite the share price decline, we think the quarter was pretty solid with Cisco posting 33% Product Order growth, 200% Order growth out of cloud customers, 46% in Commercial and 30% in Enterprise,” Henderson wrote.
Wells Fargo analyst Aaron Rakers said Cisco’s earnings sell-off is a buying opportunity as the company continues to transition its business.
“While we think investors might be disappointed by Cisco's below street F2Q22 rev. and GM% guide, we think they should be focused on continued strength in product order growth +33% y/y and ARR +10% y/y; also note product RPO +21% y/y,” Rakers wrote.
Ratings And Price Targets:
- Bank of America has a Buy rating and $64 target.
- JMP has a Market Perform rating.
- Oppenheimer has an Outperform rating and $60 target.
- Wells Fargo has an Overweight rating and $70 target.
- Raymond James has an Outperform rating and $64 target.
- Needham has a Hold rating.
- KeyBanc has a Sector Weight rating.
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