Cisco Systems (CSCO) shares were falling again this morning despite some glimmers of hope for the company in its fiscal Q4 report and fiscal Q1 outlook last night (see earnings call transcript). The company saw quarter-to-quarter growth for the first time in four quarters; its gross profit of 65.3% of sales was above the 64% folks were looking for; operating expenses of $3.3 billion were in the neighborhood of what the company has been targeting and look set to remain there; and Cisco forecast sales that could be $8.7 billion, at the midpoint of its range, which is above the $8.6 billion analysts have been looking for.
That’s not enough for some investors, as expectations had been rising going into the quarter. This morning, the stock is down 7 cents, or .3%, at $22.10.
Yet the bulls on Cisco seem largely satisfied and today brought some upward estimate revisions and some price target increases. Even bears are raising their price targets and estimates.
Ari Bensinger, Standard & Poor’s: maintains his “Buy” rating on the stock, and ups his price target to $24 from $21. “We believe industry demand is beginning to improve, evidenced by a book to bill above one and positive order activity patterns,” writes Bensinger.
Ittai Kidron, Oppenheimer & Co.: reiterates his “Outperform” rating and $25 price target. Kidron concedes Cisco disappointed some of the whisper numbers, “keeping it cool,” perhaps too cool, in its outlook for the current quarter, he writes. While Cisco’s business with large telecom companies was weak, the company saw orders rise among its enterprise and government customers for the first time in several quarters, and growth in Asia Pacific and the U.S. for orders was in double-digits. Kidron thinks Cisco is “on the right path for solid accelerating year-over-year growth in 2010,” and that investors should take advantage of the stock while expectations are currently low.
Hasan Imam, Thomas Weisel: reiterates his “Outperform” rating and raises his price target to $23 from $22. He’s heartened by the fact that the “core” networking business of routers and switches was one of the sources of strength, with router sales up 8.3% from Q3 and switch sales up 10.7%. This all adds up to evidence for a recovery in IT spending, Imam writes. He raised his fiscal 2010 estimates to $35.7 billion in revenue from $35 billion and to $1.34 in EPS from $1.31.
Mark McKechnie, Broadpoint/Amtech: Reiterates his “Neutral” rating with no price target. While the forecast is “is marginally better than the last 5-year average seasonality of up ~1%,” at up 1% to 3%, “we believe the Street was looking for more,” observes McKechnie. “We note a seasonal “pause” for orders in August following a strong July, with a likely resumption in September/October should the “recovery” prove real.” McKechnie left unchanged his estimate for this quarter of $8.7 billion but raised his fiscal year forecast to $35.8 billion. Enthusiasm to own the stock will probably wane, he writes.
Nikos Theodesopoulos, UBS Securities: Reiterates his “Neutral” rating while raising his price target to $23 from $22.50. Theodosopoulos has clearly been well above the mean estimate, with a prior forecast for this fiscal year of $36.2 billion in revenue, which he today raises to $36.7 billion. Theodosopoulos thinks the stock trades at a hefty premium to peers now, at almost 19 times his $1.17 EPS estimate for this fiscal year. Also, he came away from the call with no greater clarity on potential competitive issues with IBM (IBM) and Hewlett Packard (HPQ) as Cisco’s data center server, the “UCS,” starts shipping later this year.
Tony Carbone, Auriga Securities: Remains “on the sidelines” but raises his price target to $22 from $21. Like Theodosopoulos, he’s raising his year outlook, in this case, to $36.5 billion and $1.31 in EPS from $36 billion and $1.28. A “floor is in place” with Cisco’s forecast, writes Carbone. Nevertheless, he anticipates increased competitive pressure in routing and switching equipment that could hurt gross profit.
Jason Ader, William Blair & Co.: Maintains his “Market Perform” rating on the stock, advising folks not to “put new money to work” but also not to sell the stock. His new estimate for fiscal 2010 revenue is $36.5 billion, up from $35.6 billion, with $1.30 in EPS, up from $1.23. Ader’s concern remains around gross profit, specifically Cisco’s forecast for margins to decline by over a percentage point this quarter. Ader is worried the push into servers (with high costs associated to develop and make) and into consumer electronics (with lower margin than routers) threatens profitability down the road. He gives the stock a $25 valuation.
Cisco shares today were at one point down 26 cents, or 1.2%, to $21.92, but have since rebounded to $22.15.
