Why Cisco (CSCO) Lowered Its Revenue Outlook

NEW YORK (TheStreet) -- During Cisco's (CSCO) annual analyst meeting CEO John Chambers said the company is "extremely challenged" in emerging markets.

While demand is strong in the U.S., Cisco has seen a 12% year-over-year drop in orders in emerging markets such as Russia and Brazil in its Oct. quarter. The company also saw an 18% drop in orders from both China and India. Chambers expects emerging markets to grow by 6% to 10% when the company recovers.

Chambers admitted earlier that sales in China declined following the recent NSA scandal. He claimed the scandal had no effect on other markets, however.

Cisco CFO Frank Calderoni said the company is now target annual revenue growth of 3% to 6% over the next 3 to 5 years during the analyst meeting, down from a previous estimate of between 5% and 7%. The company's revenue growth for fiscal year 2014, ending July 2014, is "basically" in line with forecasts of a 4% decline, according to Calderoni.

The company is now aiming for services revenue growth of 7% to 10% bovver the next 3 to 5 years, which is down from 9% to 11%. Cisco expects its cloud and cloud-enabling technologies will show a growth rate of between 12% and 18%.

TheStreet Ratings team rates CISCO SYSTEMS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate CISCO SYSTEMS INC (CSCO) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CSCO's revenue growth trails the industry average of 22.4%. Since the same quarter one year prior, revenues slightly increased by 1.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although CSCO's debt-to-equity ratio of 0.28 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 2.65, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for CISCO SYSTEMS INC is rather high; currently it is at 65.64%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 16.48% trails the industry average.
  • Net operating cash flow has slightly increased to $2,649.00 million or 7.46% when compared to the same quarter last year. Despite an increase in cash flow, CISCO SYSTEMS INC's cash flow growth rate is still lower than the industry average growth rate of 50.37%.
  • You can view the full analysis from the report here: CSCO Ratings Report

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