Cisco's Stock Drops On Guidance, Sell-Side Lowers Price Targets

Cisco Systems, Inc. CSCO shares continued to drop Thursday after the company issued weak guidance, leading a couple of sell-side analysts to trim revenue estimates and lower price targets on the stock.

The Analysts

Bank of Amrerica's Tal Liani reiterated a Buy rating on Cisco, but lowered the target price from $62 to $56.

UBS analyst Tejas Venkatesh kept a Buy rating on the stock and dropped the price target from $58 to $54.

Credit Suisse analyst Sami Badri is staying Neutral on the stock with a $49 price target.

The Theses

Liani noted that Cisco's fiscal first-quarter print wasn't that bad looking back - it was only looking forward that presented a problem. Revenue of $13.16 billion and EPS of 84 cents beat Street estimates on the back of high margins from a good price environment and product mix.

But investors were obviously concerned about the company's weak second-quarter revenue guidance, down 4% year over year, when the Street was expecting 2.7% growth. The dreary forecast is being attributed to broadbased softening in spending across all product lines and geographies, Liani noted.

"Nevertheless, we look through the current weakness and reiterate our Buy, as we favor Cisco’s strategy and execution, see strong growth in key product categories like Campus Switching and Security, highlight progress in the transition toward software/recurring revenues, and favor the ~3% dividend yield," Liani wrote in a note.

Compelling Risk-Reward, But 'Show Me'

Venkatesh said there remain lots of positives in the Cisco story, with strong expectations for software, and the "best operating margins in decades."

"The stock has both aspects of being a 'show-me story' and what we view as a compelling risk-reward from today’s levels if macro gets better," Venkatesh wrote.

While remaining Neutral, Badri noted several beats from Cisco, including topping the estimates for non-GAAP gross and operating margins, and several categories of revenue, including applications and security.

As for the weaker guidance, Badri said he was waiting for more color on the soft dynamics from Thursday's conference call.