Should You Buy Cisco (CSCO) Stock on Earnings? 7 Pros, 7 Cons


Cisco (NASDAQ:CSCO) reported solid fiscal fourth-quarter results, meeting consensus revenue and edging earnings, while guiding F1Q19 just above consensus. Investors are likely most pleased with the implications from the networking giant’s earnings report, sending CSCO shares rising nearly 4% in Thursday’s trading session.

Pros and Cons from Cisco’s Earnings Report

Bulls are excited because of: (1) Strongest YoY revenue growth (+5.9% YoY) since FY2Q15. (2) Strength was broadbased geographically. (3) Infrastructure Platforms and Security growth (+12.5%) accelerated. (4) Robust order metrics: Enterprise (+11.0%) and Commercial (+9.0%) were strong. (5) Service Provider grew (+6.0%) after eight quarters of declines. (6) Strong repurchase activity ($6.0B). (7) top-line guidance.

However, naysayers point to: (1) Weaker service provider routing. (2) ASC 606 has a 1% inorganic impact to top-line guidance, muddling YoY comparisons (3) A deferred revenue write-off is expected. (4) Application revenues missed consensus. (5) Both product (-35 bps YoY; APJC weakness) and service gross margin contracted (-172 bps YoY). (6) Higher component costs may persist. (7) Flattish sequential operating margin guidance.

Oppenheimer’s top analyst Ittai Kidron joins the bulls’ side, reiterating an Outperform rating on Cisco stock, while slightly raising the price target to $50 (from $46), which represents a potential upside of 10% from where the stock is currently trading.

Kidron noted, “Robust order trends and strength across multiple end markets suggest Cisco is navigating through a confluence of potential risks (macro, tariffs, FX). We believe Cisco can continue its transition to recurring/subscription model, with potential bumps mitigated by an attractive dividend yield and significant share repurchases. Raising estimates for results/guidance.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Ittai Kidron has a yearly average return of 24.2% and a 64% success rate. Kidron has a 18.1% average return when recommending CSCO, and is ranked #41 out of 4850 analysts.

Out of the 33 analysts polled in the past 12 months, 23 rate Cisco stock a Buy, 9 rate the stock a Hold and 1 recommends Sell. With a return potential of 9%, the stock’s consensus target price stands at $49.65.

 

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