Cisco Systems (CSCO) shares are under pressure this morning after UBS telecom equipment analyst Nikos Theodosopoulos cut his rating on the stock to Neutral from Buy and trimmed his earnings estimates on the company. His 2008 EPS forecast ex-options drops to $1.50 from $1.51; for 2009 he goes to $1.64 from $1.67.
Theodosopoulos says industry checks show orders are slowing. He says the Street consensus is for 6% sequential growth in the July quarter, but he now sees just 4% growth. In addition to weakness in the U.S. enterprise sector, he says European enterprise business is now also slowing. And he says emerging markets are strong, but growing 25%-30%, not the 30%-40% target.
Cisco has repeatedly confirmed its long-term guidance of 12%-17% top-line growth. But Theodosopoulos says analysis of tech companies with $40 billion or more in sales finds it is virtually impossible to grow companies of that size at Cisco’s forecast rate without requiring acquisitions and compromising operating margins. “We believe Cisco’s aggressive target will require acquisitions,” he says. “We think the stock will have a hard time rallying if demand is slowing and acquisitions are likely.”
Theodosopoulos keeps his $27 price target on the stock. Cisco this morning is down 88 cents, or 3.5%, to $24.08.
