Baird Analyst Provides Rating Update on Cisco Systems (CSCO) After FQ1 Beat

By Carrie Williams

Baird reaffirm Buy on Cisco Systems Inc. (CSCO) after FQ1 BeatIn a report released today, Jayson Noland from Robert W. Baird reiterated their ‘Buy’ rating on tech giant Cisco Systems Inc. (NASDAQ: CSCO). CSCO had announced their FQ1 results yesterday, with both revenue and earnings beat while the forecast for adjusted profit for the current quarter missed analysts’ estimate. Reacting to the results, the share prices of CSCO slid down by nearly 3% and closed at $31.57 yesterday.

For FQ1, Cisco reported an EPS of $0.61 which beat street estimates by $0.02 and revenue of $12.35 billion (-2.6% YoY) which was $20 million higher than the street consensus. Although CSCO’s product orders were down 2% YoY with a book to bill below 1, the recent productivity improvements helped in realizing a product gross margin of 64.8% (up 30 bps YoY).

Meanwhile, the revenue guidance for FQ2’17 was given as -2% to -4% YoY indicating $11.3-11.6 billion versus the consensus of $12.2 billion. The guidance for non-GAAP EPS was $0.55-$0.57 against the consensus of $0.59. Cisco attributed the profit forecast miss to the slowdowns in SP CapEx and the macroeconomic weakness in Emerging Markets to a small extent.

Consequently, the brokerage firm adjusted their F17E revenue to $48.0 billion from $49.4 billion while the non-GAAP EPS was also lowered from $2.45 to $2.40, assuming a flat top-line growth. For F18E, Noland also introduced a revenue estimate of $47.9 billion and EPS estimate of $2.46.

Noland observed that the weakness in Service Provider orders was due to SP CapEx slowdown and the lower growth in Campus switching was caused by macro weakness. Meanwhile, the corporate business remained strong, thanks to the strength in core and edge routing markets.

Multiple brokerage firms weighed in on Cisco after the FQ1 results. Erik Suppiger from JMP Securities  and Tal Liani from Merrill Lynch reiterated their Hold rating on CSCO today, while Brian White from Drexel Hamilton, George Notter from Jefferies,  Jess Lubert from Wells Fargo, and Jim Suva from Citigroup reiterated their ‘Buy’ rating on the stock. Based on the recent corporate insider activity of 74 insiders, corporate insider sentiment is currently negative on the stock.

Cisco has an average rating of ‘Moderate Buy’ based on the 24 analyst recommendations in the past three months according to data. The average analyst price target for CSCO is $33.37, which is an upside of 12.17% from the last close price.