Cisco Systems (CSCO)

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Cisco Analysts Approach Stock With Caution Before Second-Quarter Report
By: TheStreet | February 10, 2020

• Cisco Systems analysts are taking a cautious approach to the networking giant, which on Wednesday is scheduled to report fiscal-second-quarter earnings.

Analysts are taking a cautious approach to Cisco Systems (CSCO), which on Wednesday is scheduled to report fiscal-second-quarter earnings.

Shares of the San Jose, Calif., networking company at last check were up 0.9% at $48.41. The stock is little changed in 2020. It's up 11% from its 52-week low of $43.40, set in early December.

Wall Street is expecting Cisco to report earnings of 76 cents a share for the quarter ended Jan. 25.

Morgan Stanley analyst Meta Marshall, who rates the stock equal weight with a $50 price target, expects Cisco met or slightly outperformed the consensus.

"With Cisco returning to pre-fiscal-first-quarter-print levels, we think improved macro data points since November have been digested by the market today," Marshall said in a note to investors.

"Our reseller checks were also indicative of a more stable spending environment heading into the quarter end, and we see less downside risk heading on Cisco's fiscal-second-quarter print."

Marshall added, however, that "what keeps us from taking a more positive view is ... that improved data points and channel feedback are more reflective of stabilization vs. ability to turn to growth, leaving [the] current valuation about appropriate."

Marshall could turn more positive if Cisco "were to see more pull-through of growth from acquired companies into core networking categories; or if IT-spending trends reaccelerated. We could turn more negative if enterprise-spending intentions begin to meaningfully turn negative."

Piper Sandler analyst James Fish, who rates the stock neutral with a $50 target, said in a research note that "we are expecting a 'typical' Cisco quarter in the fiscal second quarter, after management significantly lowered expectations last quarter and in which the company slightly beats expectations."

"The stock lacks a catalyst and will remain pressured by the cyclical slowdown," Fish said. "[And] as such, ... investors should look to other plays like F5 (FFIV) that have catalysts, are growing faster and going through a faster software transition, and trades at a lower valuation."

Fish said that given the continuation of issues around the business-cycle slowdown and macro issues, he expected Cisco to "guide to -4% to -2% year-over-year growth ($12.57 billion vs. Wall Street's $12.63 billion) that implies another estimate cut is likely to occur."

In November, Cisco posted stronger-than-expected fiscal-first-quarter earnings. But it said uncertain conditions would hit client orders in the months ahead in what CEO Chuck Robbins called "a challenging macro environment."

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