Cisco: High Volume, Lower Share Price, Mixed Reaction to FY Q3 Results

Cisco Systems (CSCO) shares, which had traded higher in after-hours trading last night following the company’s announcement of results for its fiscal third quarter ended April, are trending lower today on continued Street concerns about the company’s prospects for the rest of the calendar year and beyond.

Cisco’s third quarter numbers (see earnings call transcript) were actually a tad better than expected at both the top-line and the bottom line, but CEO John Chambers indicated in an interview with Tech Trader Daily that conditions were likely to remain muted through the end of the calendar year. Chambers said the company actually saw some improvement in conditions at U.S. enterprise customers, which had been an area of weakness in the last two quarters, but that orders were declining in the U.S. carrier segment. Orders in the U.S. are growing in the mid-single-digit range; given that the domestic market is still a large slice of the company’s revenues, it will likely take a U.S. economic recovery before Cisco can get back on track with its long-term goal of top-line growth in the 12%-17% range.

Here are a few excerpts from some of the Street’s research on the stock this morning:

• Samuel Wilson, JMP Securities: “From an analysis of the numbers, it’s clear to us that Cisco is seeing a broad slowdown in its business,” he wrote. “Almost all customers segments, geographic segments and product segments are witnessing decelerating year-over-year growth.”
• Sanjiv Wadhani, Stifel Nicolaus: “While the company was able to deliver order growth in-line with expectations, some high growth areas such as the service provider segment and emerging markets showed material deceleration,” he writes. “The slowdown in these key segments does not allay our concerns about the company’s ability to deliver 12%-17% growth rate in the long run.”
• Simona Jankowski, Goldman Sachs: She maintains a Buy rating on the stock, but cautions that the company’s business “will not inflect positively until the January quarter at the earliest.”
• William Choi, Jefferies: “While the environment continues to remain challenging, we believe Cisco could fare relatively well due to its broad product, customer and geographic diversification.” He keeps his Buy rating.
• Ryan Hutchinson, Lazard Capital Markets: “We continue to believe that Cisco represents long-term value given the impressive execution, business diversification and beneficial secular trends.” He keeps a Buy rating, and raises his target to $29 from $28.
• Paul Mansky, Citigroup: He maintains a Buy rating, but notes that “the underlying dynamic of decelerating order growth across a broad spectrum of markets points to a “U” versus a “V” shaped recovery, which likely has the shares giving up some of their 14% gain in recent weeks.”
• Andrew Beswick, Nomura: “Good Q3 numbers, but a lack of visibility is hampering belief in its longer term growth forecast of 12%-17%.”

Cisco ended the day 43 cents, or 1.6%, off its opening price, at $25.78.