NEW YORK (TheStreet) - Cisco (CSCO) - Get Cisco Systems, Inc. Report shares hit a 52-week-high as the market opened on Thursday after the network-equipment maker reported better-than-expected earnings and revenue for its fiscal second quarter.
Cisco reported net income of $2.4 billion, or 46 cents a share, compared with $1.4 billion, or 27 cents a share in the year-earlier quarter. Excluding one-time gains and charges, adjusted earnings were 53 cents a share, exceeding analysts' average estimate by 2 cents. Revenue jumped 7% to $11.9 billion, beating expectations of $11.8 billion.
Unlike the case with several competitors, the stronger U.S. dollar did not overshadow Cisco's strong results in routing and switching.
On Thursday morning, shares were up 7.4% to $28.91. Earlier, they traded as high as $29.59, a 52-week high.
Here's what analysts said.
Ittai Kidron, Oppenheimer (Outperform, $30 PT)
"Cisco reported solid Dec. quarterly results beating top and bottom line consensus, and offered equally solid guidance for the April quarter, despite continued caution on emerging markets and service provider spending. We came away from the call with greater confidence in Cisco's technology leadership, execution and recovery trajectory. Cisco saw strong product orders across geographic and customer verticals, with several trends in early stages of development. While the headwinds in emerging markets and service provider are likely to remain in place, we believe that by now they are well reflected in estimates. We maintain our Outperform rating. Raise price target to $30 from $29 and raise estimates to reflect results and guidance."
Brent Bracelin, Pacific Crest Securities (Sector Perform, N/A PT)
"Upside on the highest product growth in three years and a bullish tone on new products gaining mindshare with large customers could continue to elevate CSCO shares into Mobile World Congress next month. We see fair-value range of $27 to $30.
Revenue increased 7% y/y to $11.94 billion, exceeding consensus of $11.8 billion and our slightly higher estimate of $11.88 billion. Revenue upside was driven predominantly by three segments; routing, wireless and servers, which generated increases of 2%, 18% and 40%, respectively. Product growth of 8% was the highest since 2012, albeit in part because of the easiest comparison since 2009. EPS increased 12% to $0.53, exceeding consensus by $0.02.
Moderating declines in service provider orders (~25% of sales), which were -1% compared to -10% last quarter, were encouraging. However, management was less confident that carrier capex would recover this year. It said return to growth in this vertical could be driven entirely by share gains."
Kulbinder Garcha, Credit Suisse (Underperform, $20 PT)
"Revenues were above the Street's estimates at $11.9bn (7% y/y, -2.5% q/q), with GMs at 61.7%, better than expected. Guidance was also reassuring with revenues at $12.0bn and EPS of $0.52 at the midpoint. While it's worth noting that such results come against a period of easy comparisons, we believe that execution has been solid. We raise our FY15/FY16 EPS estimates by 4%/3% to $2.13/$2.02 and acknowledge that near term, the shares may perform well. However, we still believe that the secular impact of SDN will become more meaningful over the next 12-18 months, and retain our UNDERPERFORM rating.
We have concerns the adoption of SDN will take time, but will shrink gross profit dollars for the networking stack. We believe margin pressures will remain and project OMs of 27% LT, which results in little EPS growth. Our $20 target price implies a 10x multiple on our FY16 estimate, which is reasonable in light of secular concerns the company faces and the accelerating pace with which they will impact Cisco's fundamentals."
Ehud Gelblum, Citigroup (Sell, $25 PT)
"FQ3 revenue guidance of +3-5% y/y is in-line with our model and 3.6% estimate, but implies revenue growth decelerates in FQ3 despite order growth accelerating in FQ2, potentially a sign of conservative guidance, as comps grow harder. EPS guidance of $0.51-0.53 is also inline. No change to FQ3 estimates.
While Cisco's business appears to be recovering, we continue to believe it remains a very low single-digit grower with no upside to op margin and toughcomps ahead. We therefore believe the current 13x P/E more than compensates forthis profile, a 3% dividend and buy-back. Raising PT to $25 from $22, a higher 12xour new CY'15 EPS est of $2.10, up from 11x on large-cap tech multiple expansion."
Brian White, Cantor Fitzgerald (Buy, $33 PT)
"In our view, Cisco's tone was upbeat on last night's call and largely driven by the company's continued strong execution and favorable product cycle; however, the company was quick to call out caution as it relates to carrier spending and trends in emerging markets. During 2Q:FY15, Cisco's product orders rose by 5% YoY (vs. up 1% in 1Q:FY15) and the highest since 2Q:FY12, while the company's product book-to-bill ratio was above 1.0x (vs. below 1.0x in 1Q:FY15). Product orders in the public sector grew by 7% YoY, commercial rose by 8%, and enterprise increased by 10%, while service provider fell by 1% but better than the average decline of 10% over the previous five quarters.
Looking into 3Q:FY15, Cisco expects sales to be up by 3-5% YoY (i.e., $11.89-12.12 billion), while pro forma EPS is projected to be $0.51-0.53 (Consensus is $0.52). For 3Q:FY15, we are boosting our revenue forecast to $12.09 billion from $11.84 billion (Consensus is $12.01 billion) and tweaking our pro forma EPS estimate to $0.53 from $0.52. For FY:15, we are raising our revenue estimate to $48.83 billion from $48.23 billion and increasing our pro forma EPS projection to $2.17 from $2.12."
TheStreet Ratings team rates CISCO SYSTEMS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CISCO SYSTEMS INC (CSCO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. 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 has slightly outpaced the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 1.3%. 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.
- The gross profit margin for CISCO SYSTEMS INC is rather high; currently it is at 65.71%. 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 14.92% trails the industry average.
- Despite currently having a low debt-to-equity ratio of 0.37, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.03 is very high and demonstrates very strong liquidity.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: CSCO Ratings Report
-- Written by Laurie Kulikowski in New York.