The San Jose, Calif.-based networking company projected second-quarter earnings between 55 cents and 57 cents a share and expects revenue to decline 2% to 4% over last year, while Wall Street was expecting earnings of 59 cents per share and 1.8% year-over-year growth. For the fiscal first quarter, however, results beat analysts' expectations.
CEO Chuck Robbins said on the company's conference call that the cautious second-quarter guidance was due primarily to weakness in the company's service provider business, in which orders fell 12% annually in the past quarter.
Shares of Cisco were down 5.5% to $29.83 Thursday morning following the results.
Jim Cramer and Jack Mohr, who co-manage our Action Alerts PLUS investment club, cut AAP's rating on CSCO to a "Two" from a previous "One," writing in a note to club members that "Cisco's growth is contingent on far too many factors outside management's control." Click here for a free 14-day trial of Action Alerts PLUS and read their full analysis.
Still, Pacific Crest analysts Alex Kurtz and Steve Enders reiterated a "buy" rating and $33 price target on the stock Thursday morning. "Despite the setback in the U.S. service provider market, which appears unrelated to product or competitive positioning ... we would see any material pullback in the stock as a buying opportunity," Kurtz and Enders said in a note.
"Longer-term investors will see the growth in recurring revenue, now at 29% of total revenue, up from 25.5% a year ago, as a positive sign that customers are adopting subscription-based services and adding some stability to the company's non-[service provider] business over time," they added.
Deutsche Bank's Vijay Bhagavath was similarly optimistic. "We take a 'glass half full' view on [Cisco]," Bhagavath said in a Thursday analyst note, keeping a "buy" rating and $37 price target.
"We see [Cisco] leveraging the power of its strong balance sheet and cash flow to 'double down' inorganically and through new products in mega themes," Bhagavath said, giving examples such as infrastructure automation and analytics, next generation security, cloud-managed services and Internet of Things.
BMO Capital Markets analyst Tim Long noted that Cisco has given lower guidance for the last three January quarters and that it "strikes again" this year.
Long added that Cisco stock typically does well after revenue resets, and he expects the shares to follow suit this year. Long maintained his outperform rating and $33 price target for the stock.
Jefferies analysts George Notter, Norah Kennedy and Kyle McNealy said on Thursday that investors should take the negative outlook with a "grain of salt," as they kept a "buy" rating and $35 price target on Cisco stock. They noted that Cisco often tends to guide low from time to time, adding that the company is experiencing a disruption in near-term sales as it seeks to shift toward software as a service and recurring revenues.
But Oppenheimer's Ittai Kidron, Michael Leonard and George Iwanyc contended that the weak guidance "could point to some other issues," including the company's maturing product line. "All things considered, we continue to be impressed with execution," the analysts noted, maintaining their "outperform" rating and $34 price target.
Analyst Mark Moskowitz from Barclays said that he expects Cisco shares to be pressured in the near-term, but is keeping an "overweight" rating and $34 price target.
"The silver lining is that we think the main drivers [to the second-quarter guidance] are not due to the company's execution or being out of position," Moskowitz noted. "Service provider/carrier and campus spending patterns in routing and switching, respectively, are contributing to incremental headwinds."
What to do with the stock, Moskowitz asked? "Buy on weakness."