Proactive Investors - Analysts at two firms have lowered their price targets for Cisco Systems (NASDAQ:CSCO) after the networking, cloud and security solutions provider guided weaker-than-expected sales and profits for the December quarter and fiscal 2024 when handing down its 1Q earnings after Wednesday’s closing bell.
UBS analysts lowered their price target on the stock from US$55 to US$54 on downwardly revised estimates for revenue and earnings per share (EPS) and awarded it a ‘Neutral’ rating.
Cisco shares traded down 11.7% at about US$47 on Thursday afternoon.
The UBS analysts noted that the company’s guidance for the January quarter was below their cautious expectations and that it lowered its fiscal 2024 revenue and EPS from the outlook it provided just 90 days ago.
They wrote in a note to clients that the negative revision for 2Q was somewhat expected but said the magnitude and the reason for the revision were both surprising.
“While we had signalled the macro and demand backdrop was incrementally worse in October raising risk to the guide, Cisco management somewhat surprisingly did not cite macro for the January revenue guide coming in 10% below our forecast,” they wrote.
“Rather, the company highlighted that customers have one to two quarters of shipped product orders that are essentially sitting on loading docks waiting to be implemented.”
They noted that, while management believes product orders and revenue should improve quarter-over-quarter from what could be a trough in 2Q, they are not as confident given the building macro pressures.
“While the company has shed some line of sight into activations and expects orders to accelerate in the second half of 2024, given macro was not used as an underlying reason for the revision, we remain concerned this cut might not be the last,” they wrote.
Analysts at Jefferies lowered their price target on Cisco from US$59.50 to US$55 and awarded it a ‘Buy’ rating.
They noted that Cisco may have taken longer than others to notice the excess customer inventory issue as 80%-plus of its business is focused on enterprises where they have more leverage over customers and the distribution channel.
“With Cisco’s enterprise customer base, they may have been more forceful about shipping backlog and delivering against scheduled shipping dates. Without pushouts (or re-scheduling) of backlog ship dates, they’ve been able to grind out quarterly results as long as the backlog was elevated,” the analysts wrote.
“Now, they’ve exhausted their excess backlog and the business is stepping back down to lower revenue run rates. The company noted that their customers are having trouble absorbing/implementing all the products they’ve shipped over the past two quarters.”
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