Cisco +6.4% as PT hikes arrive; long-term concerns remain

No less than 16 firms have upped their Cisco (CSCO +6.4%) PTs after the company beat depressed FQ4 estimates and offered better-than-expected guidance and order data. The hikes are generally in the $1-$2 range.

RBC (Outperform) thinks value investors might embrace Cisco as it returns to flat revenue growth and further cuts opex. "[Free cash flow] is predictable at $11B-$12B/yr; we look for Cisco to remain a dividend grower." After backing out ~$30B in net cash, Cisco currently goes for ~8x RBC's FCF target range.

Goldman (Buy) estimates Cisco's routing and switching numbers were respectively 8% and 2% above consensus, and is pleased with early uptake for the Nexus 9000/ACI SDN platform and NCS and CRS-X core routers.

Nonetheless, there are still plenty of concerns about long-term challenges. MKM (Neutral), which has already raised alarm bells about SDN threats: "Cisco seems to be benefiting from SDN in the near term, but the competitive landscape is set to become much more difficult over a 12+ month time frame."

Credit Suisse (Underperform) questions "the size and scope" of early Nexus 9000 deployments. "Our secular concern is that the impact of SDN will introduce more competition at multiple points in the network. While the impact will take time, the threat will be very real, shrinking gross profit dollars for the entire networking stack."

Shares are holding onto yesterday's AH gains in spite of a tech selloff.

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Comments (2)
  • Esekla
    , contributor
    Comments (4791) | Send Message
    Another concern, noted by my recent article: Just as the Target breach showed some initial rebound but is proving to have long-standing consequences, so too will Cisco's abysmal performance in handling security issues dog them for years to come.
    15 May 2014, 01:27 PM Reply Like
  • combatcorpsmanVN
    , contributor
    Comments (1396) | Send Message
    $CSCO - 3Q results are a fact. The future is a guess, at best. CSCO is a difficult company to bet against b/c the fundamentals are so strong and appear to be getting stronger. Tremendous Free Cash Flow generated every year. Cash on the Balance Sheet is at a very high level. I don't care if the Cash is off shore or on shore. Those are facts.


    On the other hand, nobody knows the future so second guesses by people pretending they know the future has zero value. In CSCO's case, I recently went long when the shares were at $20.35 -- almost w/o exception every pundit/guru/self-anointed CSCO expert was pretending to know how dismal CSCO's future was --- well, here we are a few months later and those shares have now appreciated 15%. So, once again -- when it comes to strong value stocks buy them the way Graham, Buffett and Peter Fischer said to do. Let the WS pundits serve you rather than you reacting to what they think they know.


    Good luck to the CSCO longs.
    16 May 2014, 11:36 AM Reply Like
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