As much as the pandemic has hurt some companies, it's given a real boost to others, especially those who help drive the growing everything-from-home phenomenon.
Cisco Systems (NASDAQ:CSCO) has made some truly impressive gains on the back of this and other phenomena and its latest earnings report detailed just how well the company did in its market. The report doesn't come without a little bad news, though, so it's a point to counterbalance some of the gains the company has made.
It's Not a Slump, It's a Tradition
Cisco's earnings report offered up a lot of positive news. The company brought in an adjusted earnings per share (EPS) figure of $0.76, which beat the expected $0.70 from a Refinitiv consensus. Cisco also beat expectations on revenue overall based against that same Refinitiv consensus, bringing in $11.93 billion against an expected $11.98 billion.
Good news, surely, and the news actually looks brighter for next quarter. Cisco offered guidance on the next quarter—which these days is a minor feat in and of itself—that projected $0.74 to $0.76 in adjusted EPS. However, the company also expects that, for the fiscal second quarter, revenue will be either flat or down as much as 2% against the same time the previous year. Both of these figures are still ahead of analyst consensus, which currently posits that the company will bring in $0.73 in adjusted EPS and would see a revenue decline of 3%.
Comparing this quarter to the same time last year, though, is a bit more distressing. This represents the fourth consecutive quarter that Cisco's revenue has declined against the same time last year. Cisco's revenue was down 9% against the same quarter last year, and it was likewise down 9% in year-on-year comparisons the previous quarter as well.
Out of the Office Puts Cisco Out of the Market
The biggest problem for Cisco, in terms of its ongoing decline in revenue, is that shift in the location of work. While Cisco's product line does help in developing products for work-from-home and everything-else-from-home operations, Cisco's primary product line focuses on the physical office. These days, the physical office is not what it used to be; while smaller offices are up and running again, major corporations are still focusing their efforts on work-from-home. There's still room for Cisco to operate here, but not quite at the levels it had seen in the past.
For instance, Cisco actually saw gains in the public sector, as orders from government offices and the like increased 5% on a year-to-year basis. However, the losses from the enterprise and commercial sectors brought the overall rate down significantly. The Infrastructure Platforms segment was down 16% against last year's figures, bringing in $6.34 billion in revenue. Applications like the Webex video calling service was down 8%, bringing in $1.48 billion.
An Improving Picture
The analyst community, meanwhile—based on our latest research—is still skeptical about Cisco's overall ability, but the picture is actually improving. The company is currently rated a “hold”, with 15 “hold” ratings and 12 “buy” ratings. That's improved over the last month, where there were 16 “hold” and 11 “buy”, but it's down significantly over three months ago, where the hold / buy ratio was an even one at 14 for each. Moreover, the consensus price target has been losing ground like a balloon with a very small hole in it, dropping from $50.13 six months ago to $47.57 today. It's up a bit against a month ago, though, where it was at $47.33.
So how should an investor react to all this? We know that Cisco is facing some real challenges as a result of the move away from the centralized office. We also know that Cisco is working to address these points, as we heard from the CEO. We know that the company has made advances as well, as Credit Suisse recently upgraded its price target, albeit to still just under where the share price is trading at today, $41.28 as of this writing. There's actually a best-case price target of $65 from Morgan Stanley, which suggests substantial potential upside.
Cisco has excellent name recognition and a solid reputation among its clients as well. All it truly needs to do at this point is adjust its product line to recognize the new conditions on the ground, and it could see substantial recovery. If things go as the CEO projects, there could be better times to come in the near term, and that makes some buying in Cisco a smart move to give a portfolio some secure tech exposure.
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