Cisco Systems (CSCO) Earnings: When Good Is Not Enough

Cisco Systems (NASDAQ:CSCO) shares are tumbling 4% in early trading Thursday, after the company released its fiscal third-quarter earnings report that failed to live up to Bull’s high expectations.

Don’t get it wrong. The networking giant did deliver total revenues and EPS of $12.46 billion and $0.66, which came ahead of the Street’s $12.43 billion and $0.65 estimates. However, services revenue of $3.15 billion came up a bit light of the Street’s $3.23 billion estimate, while the bulls were hoping for a beat on that segment. On the guidance front, the company gave an outlook generally in line with Street expectations.

GBH analyst Daniel Ives commented, “The Street was looking for more this quarter and thus could see a negative knee jerk reaction in shares accordingly […] While the macro environment remains a bit uneven especially on “large ticket” traditional networking deals, we are seeing the combination of better execution this quarter, newer product initiatives on cloud/security/IoT, and the focus on recurring revenue translating into a modestly improved selling environment for Cisco in the field and an expanding pipeline heading into the rest of FY18/early FY19.

The analyst continued, “While Cisco continues to struggle driving growth in the near term, we believe the stage is set for the company to see a renaissance of modest growth (~5%) return to the story over the coming years on the heels of more subscription based software revenue and newer growth initiatives which could help the stock get re-rated over time.”

Ives reiterates Attractive rating on Cisco Systems shares, with a price target of $51, which implies an upside of 13% from current levels. (To watch Ives’ track record, click here)

Cisco has one of the best ratings by the Street. TipRanks reveals that CSCO has a Strong Buy analyst consensus rating with 12 buy and 3 hold ratings in the last three months. Meanwhile the average analyst price target of $50.50 suggests the stock still has upside potential of just over 11% from yesterday’s closing price for the next 12 months.

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