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Cisco Plunges on Weak Outlook - What Wall Street Is Saying

Cisco shares were down big after beating revenue estimates but issuing weaker-than-expected guidance.

Cisco  (CSCO) - Get Cisco Systems, Inc. Report shares were down sharply in early trading Thursday after the company guided for current quarter adjusted earnings between 69 cents and 71 cents per share, short of analyst consensus estimates of 75 cents per share, and projected a 9% to 11% year-over-year drop in revenue.

For its fiscal fourth quarter, which ended in July, Cisco reported $12.2 billion in revenue, down 9% year-over-year, and GAAP earnings of 62 cents per share, up 22%. Analysts polled by FactSet were expecting GAAP earnings of 65 cents on sales of $12.09 billion.

By geographic segment, Americas revenue was down 12%, EMEA (Europe, Middle East and Africa) revenue was down 6%, and APJC (Asia-Pacific, Japan and China) revenue was down 7%.

Cisco shares were down 11% to $42.81 in early morning trading on Thursday.

Analysts had mixed reviews of the company's earnings release. Here is a run down of their takes on the company:

Jefferies (Maintains buy rating, price target raised to $51 from $49)

"We continue to rate the shares a Buy. The business transformation/digitization trends that -- for years -- have been driving their business with Enterprises aren’t going away (even in a softer economic environment). In addition to sustained EPS power, below-market valuations and the dividend yield should help protect downside in the stock. Also, the comps will get easier."
-George Notter

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JPMorgan (Maintains neutral rating, PT lowered to $46 from $50)

"We rate Cisco Neutral despite a favorable outlook for Cisco’s positioning in software capabilities, which we believe are well aligned to the transformation in the industry from primarily proprietary hardware to proprietary software, adding flexibility and agility to the network. Despite industry leading transformation to software capabilities, we believe earnings growth as well as re-rating of the shares in the near- to medium-term is likely to be limited by the headwinds to Enterprise IT spending in 2020."
- Samik Chatterjee

Cowen (Maintains outperform rating, PT lowered to $55 from $60)

"While our investment thesis remains largely unchanged, FY4Q20 results, guidance and commentary were at best uninspiring and at worst raise some concern. We acknowledge a lack of catalysts for CSCO’s shares over the next 90 days given the substance and tone of CSCO’s FY4Q20 results and commentary."

-Paul Silverstein

Citi (Maintains buy rating, $48 PT)

Analysts at Citi said that the report featured "lots of negatives" but "this negative news is now built into the stock and so we look ahead. An eventual return to enterprise spending and the 400G upgrade cycle starting next year bode well for the stock."

-Jim Suva

Wells Fargo (Maintains overweight rating, $55 PT)

Cisco should "be considered one of the best execution stories among the companies largely driven by on-premise spending trends. We continue to applaud Cisco's ability to maintain a 30%+ EBIT% margin and +$13B/annum" free cash flow. 

-Aaron Rakers