Cisco Shares Slump Over 5% as Revenue Disappoints

Cisco Systems’ revenue declined year-on-year basis for the fifth consecutive times in the second quarter of the fiscal year 2021 as demand for office equipment fell due to extended work-from-home during the COVID-19 pandemic, sending its shares down over 5% in extended trading on Tuesday.

The world’s leading provider of IP-based networking solutions and services said its total revenue dipped to $11.96 billion in the period ended January 23, 2021 from $12.01 billion seen in the same period a year ago. That was a bit higher than the Wall Street consensus estimate of $11.92 billion.

On the other hand, revenue from services business rose 2% to $3.39 billion. Cisco’s net income on a generally accepted accounting principles basis came in at $2.5 billion or $0.60 per share, and non-GAAP net income of $3.4 billion or $0.79 per share, beating the market expectations of $0.76 per share.

Cisco forecasts that GAAP EPS will be $0.64 to $0.69 and revenue to increase between 3.5% to 5.5% in the third quarter of fiscal 2021.

“Cisco printed solid quarterly results and provided in-line guidance for April. The shares will likely to be softer tomorrow as some investors may have expected even better guidance in light of recently improving trends among other enterprise IT-exposed companies. We note that Cisco’s order patterns are improving versus a poor picture three months ago (although easier comps are helping),” said George C. Notter, equity analyst at Jefferies.

“Also, they continue to accelerate the move to software/subscription-based business models. The bigger picture – the business transformation/digitization trends that have been driving their business with Enterprises aren’t going away, even in a difficult economic environment.”

Cisco shares, which slumped about 7% in 2020, fell over 5% to $45.87 in extended trading on Tuesday.

Cisco Stock Price Forecast

Thirteen analysts who offered stock ratings for Cisco in the last three months forecast the average price in 12 months $49.89 with a high forecast of $60.00 and a low forecast of $41.00.

The average price target represents a 2.87% increase from the last price of $48.50. From those 13 analysts, six rated “Buy”, seven rated “Hold”, and none rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $54 with a high of $65 under a bull scenario and $33 under the worst-case scenario. The firm currently has an “Overweight” rating on the technology conglomerate’s stock.

Several other analysts have also recently commented on the stock. Jefferies raised the price target to $52 from $51. Citigroup upped the price target to $50 from $45. Credit Suisse increased the target price to $46 from $41. Piper Sandler raised the target price to $47 from $45. Oppenheimer upped the price target to $50 from $45.

Analyst Comments

“Cisco (CSCO) reported a modest upside to our estimates in FQ1 driven by services and software, as demand slowly recovers. Enterprise remains the laggard but improving trajectory in commercial business a positive sign that demand positioned for recovery as employees return to work; remain OW,” said Meta Marshall, equity analyst at Morgan Stanley.

“Infrastructure revenue likely to recover as IT budgets stabilize. Diversification includes exposure to network modernization categories giving some growth offset to more challenged areas. Higher proportion of recurring sales limits downside volatility relative to previous cycles, but still not immune. Security/analytics capabilities should help Cisco stay important to IT budgets even as cloud transition accelerates. Security and applications growth (primarily inorganic) help improve margins of overall business. Cash flow offers meaningful flexibility.”

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