Technology Stocks

Why Cisco Systems, Inc. (NASDAQ:CSCO) Offers a Ray of Sunshine

Cisco Systems, Inc. (NASDAQ:CSCO) stands out this week the way INTC stood out 2 weeks ago. In a market that has been dominated by selling, volatility, and drooping guidance and tone from management teams on conference calls, CSCO was a very healthy signal. This is a HUGE player in the technology landscape, and the company posted a spectacular report, complete with genuinely upbeat commentary, guidance, and results.

We were particularly interested to get the sense that the company’s strong performance and outlook was not due to any geographic anomalies (as we have seen at times in the past). Strength was seen across all verticals and markets, globally. Everything everywhere was strong. That’s the takeaway, and its extremely refreshing at a time when we have the likes of Tepper throwing his Apple shares off the boat and short interest skyrocketing in the Nasdaq futures.

Cisco Systems, Inc. (NASDAQ:CSCO) also gave a window into how the US-China trade war is impacting big-cap tech. The company offered a strong single-digit guide that included a measure of accounting for tariffs.

The important part there is a reminder – though we may “poo poo” it into the G-20 in two weeks – of what would happen to price target forecasts from analysts if we do get a deal between the White House and Beijing in the next 30-60 days.

In terms of the fiscal Q1 (Sep Q) numbers, non-GAAP EPS rose 23% yr/yr to $0.75, above prior guidance of $0.70-0.72. Revenue rose 7.7% yr/yr to $13.07 bln, which also was above prior guidance of $12.74-12.99 bln. Non-GAAP operating margin increased a bit to 31.9% vs 30.4% in the prior year period. In terms of guidance for Q2 (Jan), Cisco sees non-GAAP EPS of $0.71-0.73 and revenue growth of +5-7% yr/yr, which we compute as $12.24-12.47 bln. The EPS and revenue guidance is in-line with market expectations.

Cisco said on the call last night that it saw “broad-based growth across all geographies, product categories and customer segments.” The Enterprise has expanded to now include multiple clouds, and applications are evolving at an unprecedented rate. As they face a new level of complexity, customers are increasingly seeing the value of Cisco’s integrated platforms over standalone products.

In terms of key new products, in its Infrastructure Platforms segment, Cisco announced several new additions. It launched the next editions to the Catalyst 9000 family, the Catalyst 9200 and the Catalyst 9800. In its data center segment, Cisco recently unveiled new Nexus 400GB switches. The company says it’s committed to leading the market transition from 100GB to 400GB, providing customers with increased bandwidth and scale.


Sell-Side Superlatives

  • Needham notes that in the recently arid investment landscape Cisco offered an oasis of positive commentary, guidance and results. Cisco posted strong 1QF19 Revenue, provided guidance, and stated that demand was broad based and resilient across all verticals and geographies. Cisco saw particularly robust growth in India, but also saw strength in the US, EMEA and APAC. Enterprise growth of 15% was CSCO’s strongest in a long time. Public Sector and Commercial also posted healthy results, up 8%. Only the Service Provider sector was soft, up only 2%. They note Cisco has done several large software deals. However, it did not pro-forma for the acquisitions of Broadsoft in Applications and Duo in Security, although it did restate guidance for the divestiture of SP Video Software Solutions. The 5%-7% guide includes Tariff-related price increases
  • Oppenheimer sees further upside; Cisco can continue its transition to recurring/subscription model, with potential bumps mitigated by an attractive dividend yield and significant share repurchases; $50 tgt
  • Deutsche Bank tgt to $60 from $50
  • Raymond James raises tgt to $52
  • Credit Suisse raises tgt to $44
  • A Goldman Sachs analyst also came on CNBC today to say how much he loves the stock here

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