What Wall Street Thinks Of Cisco's Q3 Earnings

The market wasn't impressed by a modest Cisco System, Inc. CSCO third-quarter earnings beat, sending the stock lower by 4 percent on Thursday.

Several analysts have weighed on on Cisco following the report. Here’s an overview of what they had to say.

Margins Disappoint

Citi analyst Jim Suva said investors don’t seem to be appreciating Cisco’s better-than-expected inventory levels.

“We note inventories were flat q/q during the quarter, below sales outlook of ~+2% sequentially, a positive for EMA companies,” Suva wrote.

BMO analyst Tim Long said margin guidance is the reason for the negative market reaction.

“Guidance implies revenues in line with consensus, but operating margins are weaker as spending grows on recent acquisitions,” Long wrote.

GBH Insights head of technology research Daniel Ives said Wall Street was hoping for more from Cisco, but that doesn’t mean Q3 wasn’t a solid quarter.

“All product segments came in ahead of expectations, with total product revenue of $9.30 billion ahead of expectations of $9.19 billion, while services revenue of $3.15 billion came up a bit light of the Street’s $3.23 billion estimate,” Ives said.

Buy The Dip

Deutsche Bank analyst Vijay Bhagavath said long-term investors shouldn’t get discouraged by Cisco’s lack of upcoming catalysts.

“While bearish investors are likely to point to (and arguably so) lack of near-term catalysts to push up consensus earnings estimates, given the inline July Quarter outlook and a stock that seems reasonably valued...on EPS (CSCO trading at ~13x P/E on our $3.25 FY20 EPS view), we recommend clients with a 1-2+ year performance time frame to Buy the near-term weakness in the stock,” Bhagavath wrote.

Baird analyst Jayson Noland said he is recommending investors buy the post-earnings dip.

“We view Cisco as increasingly well positioned to differentiate itself with their intent-based architecture,” he wrote.

Ratings And Targets

• BMO has a Market Perform rating and $43 target.
• Deutsche Bank has a Buy rating and $55 target.
• Baird has an Outperform rating and $51 target.
• GBH Insights has an Attractive rating and $51 target.

The stock traded around $43.60 at time of publication.

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