Analysts Changing Tune on Cisco After Earnings

Cisco Systems Inc. (NASDAQ: CSCO) is one of the few bright spots on what is a very negative day in the stock market. There had been serious concerns that Cisco would guide down much more cautiously than the company actually did in its conference call.

24/7 Wall St. already covered Cisco’s earnings and guidance. Revenue and earnings per share both beat expectations, with adjusted earnings of $0.57 per share versus a consensus estimate of $0.54. Still much of Cisco’s operation showed slight sequential declines, and the company noted a slowing in recent weeks even as the quarter was coming to an end and guidance was in line for earnings and about $100 million light on revenues.

The big news was that Cisco increased its dividend handily and added another $15 billion to its endless buyback plan. Now we are seeing very mixed reactions from the analyst community. Some upgrades are taking place simultaneously while other analysts are ratcheting down their targets.

Bank of America Merrill Lynch already had a Buy rating for Cisco. The firm lowered its price objective from $30 down to $27 in their call. Merrill Lynch said:

We rate Cisco a Buy based on our belief that it can deliver mid single digits EPS growth on low to mid single digits sales growth, ex-acquisitions. We believe that major portfolio challenges are behind, and see stable to improving outlook for margins. The slower growth in switching and routing will cap Cisco’s growth long-term, however, we believe Cisco will be a beneficiary of growth within data center, collaboration, security and service provider with its architectural strategy… We balance Cisco’s weakening fundamentals with an increased 4.6% dividend yield and additional $15 billion for future share buybacks. Trading at 6.3x F2017E EV/FCF, valuation is also attractive, in our view, especially once the macro picture improves.

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Jefferies raised Cisco’s rating to Buy from Hold and raised its target price up to $27.50 from $26.00 in its call. Jefferies said:

Cisco’s results and guidance were consistent with our prior views – they hit the quarter and guided down modestly relative to Street expectations. Their commentary about the macro environment was better-than-feared. With the recent swoon in the share price, we think the risk/reward is attractive and we’re upgrading the name to a Buy rating.

Other key analyst calls for Cisco were seen as follows:

• BMO Capital Markets maintained its Outperform rating but lowered its target price to $30 from $33.
• Deutsche Bank maintained its Buy rating but lowered its target price to $33 from $35.
• Oppenheimer reiterated its Outperform rating and $30 price target.
• Raymond James reiterated its Outperform rating and raised its target price to $28 from $27.
• Standard & Poor’s maintained its Buy rating but lowered its target price to $30 from $34.
• SunTrust Robinson Humphrey maintained its Buy rating but lowered its target price to $28 from $32.

Cisco shares were trading up 10.2% at $24.80 on Thursday afternoon after hitting a 52-week low of $22.46 just on Wednesday. Cisco’s 52-week high is $30.31.