Cisco rises as analysts praise results, guidance, but note concerns over backlog, orders
Cisco Systems (NASDAQ:CSCO) shares rose on Thursday after the networking giant reported first-quarter results and guidance that topped expectations, leading to praise from analysts, albeit in a tepid manner.
William Blair analyst Jason Ader, who has a market perform rating on Cisco (CSCO), called the headline numbers "strong," but noted that the company's backlog and order growth trends continued to weaken. Ader noted that company management tried to reassure investors that its backlog will end fiscal 2023 at two to three times normal levels and remaining performance obligations continue to expand "steadily."
"Yet, with lead times shortening, demand likely to slow further in coming quarters (due to macro factors and demand pull-forward in fiscal year 2022), and backlog expected to continue to shrink, we expect an air pocket in orders to occur at some point in the next 12 months," Ader wrote in a note to clients.
In addition, Ader noted that while product order growth was "slightly lower than normal" on a sequential basis, there was a tough comparison year-over-year, causing total order growth to be down 14%, as product orders were up 34% in the year-ago quarter.
Cisco (CSCO) shares gained 3% in premarket trading on back of the results, while competitors Juniper Networks (JNPR) and Arista Networks (ANET) saw fractional moves.
Wells Fargo analyst Aaron Rakers, who has an equal weight rating and $52 price target on Cisco (CSCO), was a bit more sympathetic, noting that the company's commentary around backlog was a "net positive," even if orders fall.
"We think investors will be left to consider conservatism in Cisco's guide, which includes backlog of at least ~$11B exiting [fiscal 2023], along with easing supply chain, the full realization of price increases, and software mix as GM% positives" Rakers wrote in a note to clients.
Rakers tweaked calendar 2022 and 2023 estimates following the report, as he now expects the company to generate $53B and $55.3B in revenue and earnings of $3.42 and $3.66 per share, up from $52.6B and $55B in revenue and earnings of $3.38 and $3.63 per share, respectively.
KeyBanc Capital Markets analyst Thomas Blakey, who has a sector weight rating on Cisco (CSCO), noted that the continued improvements in the supply chain and product redesigns helped the quarter and should help for the rest of fiscal 2023.
Blakey noted that product gross margins fell 280 basis points year-over-year to 61%, but that should be the bottom, with a 50-70 basis point improvement throughout the year, "given better supply chain and continued improved mix (i.e., software attach to shipped hardware)."
Last week, Cisco (CSCO) said it would open up a new advanced semiconductor design center in Barcelona, Spain as Europe looks to expand its semiconductor ecosystem.