Cisco Systems (CSCO)

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Cisco persevered in a brutal economic climate, offering what one analyst called ‘a glimmer of confidence’
By: MarketWatch | May 14, 2020

Cisco Systems Inc. is weathering what Chief Executive Chuck Robbins calls the worst economic crisis it has encountered since it was founded in 1984.

That’s saying a lot, considering it endured the dot-com crash of the early 2000s and the Great Recession in 2008-09. But persevere Cisco did, with revenue ($12 billion) and adjusted earnings (79 cents per share) that beat Wall Street estimates and an adjusted earnings forecast (72 cents to 74 cents a share) that eclipsed the average analyst expectation of 71 cents a share, according to FactSet.

“Cisco beat in a very difficult climate. Furthermore, Cisco suggested business was unlikely to worsen beyond F4Q absent a worsening pandemic,” Instinet’s Jeff Kvaal said in a note Thursday titled “A Glimmer of Confidence.” He raised his price target to $46 from $43 while retaining a neutral rating on the stock.

In maintaining an outperform rating and price target of $50, Evercore ISI analyst Amit Daryanani pointed to diversity in Cisco’s product portfolio.

“While there was some rightful investor apprehension around headwinds in the core infrastructure platform business (down 15%) the offsets were better performance in Security (+6%) and Services (+5%), though the declines in Applications segment (down -5%) is somewhat surprising,” Daryanani wrote Thursday. “While we understand CSCO performance will be driven by macro dynamics to some extent, we do think the diversity of their portfolio will enable better performance vs. past recessions.”

A good deal of Cisco’s fortunes are tied to the digital transformation plans of large companies, which “aren’t going away,” Jefferies analyst George Notter muses in a Thursday note that maintains a buy rating and price target of $49. “We’re quite impressed with the company’s ability to hit top line expectations, guide in-line for July, and post consistent Product order growth rates in the wake of the current WFH environment,” he wrote.

That sentiment was echoed by RBC Capital Markets analyst Robert Muller. “While we expect Enterprise weakness from an uncertain macro, we believe that CSCO is positioned well for the long run and could emerge from the pandemic relatively stronger,” Muller said in a Wednesday note that maintained an outperform rating and price target of $47.

Still, current quarter guidance for an 8.5% to 11.5% year-over-year decline in revenue implies a much steeper decline in product sales of 12.5% to 16.5%, warns Needham analyst Alex Henderson, who has a hold on Cisco shares with no price target.

“We expect recovery to be a slow process for Cisco,” he said in a note Thursday.

Cisco shares, which were up 4% in early-afternoon trading Thursday, are down 22% over the last year. The broader S&P 500 index SPX, 0.14% has declined 1.5% the past year.

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