Cisco Systems (NASDAQ:CSCO) is -11.6% and retesting session lows (and its lowest point since May) amid poor investor reaction to current-quarter guidance, and while analysts skewed negative on the company’s outlook, there was some mixed reaction there – as well as some that saw negative impact from the retirement of CFO Kelly Kramer.
Several analysts are maintaining Buy-equivalent ratings despite pointing to numerous negatives; Citi, for example, is responding to the stock price drop by noting “negative news is now built in to the stock,” so it’s looking ahead to an eventual return to enterprise spending, and next year’s 400G upgrade cycle.
Piper Sandler noted Kramer’s retirement as adding to negative momentum, along with the lack of a buyback and its restructuring plan to along with the tough fiscal Q4.
Meanwhile, you wouldn’t know from the share performance today that there’s praise aplenty: Despite the poor outlook, Jefferies noted “some bright spots,” including that Enterprise tailwinds aren’t going anywhere even in a challenging macro environment, and that there’s downside protection via valuation and dividend.
The company is “one of the best execution stories … largely driven by on-premise spending trends,” Wells Fargo says. “We continue to applaud Cisco’s ability to maintain a 30%-plus EBIT margin” and free cash flow of $13B a year.
As for ancillary effects rippling out from Cisco’s big report, Wells Fargo says it will weigh on the company’s on-premise enterprise-driven peers, including HP Enterprise (HPE -5.6%), Dell (DELL -3%), Pure Storage (PSTG -4.2%) and – perhaps “most meaningfully pressured” – NetApp (NTAP -4.1%).
Other negative impacts could land on manufacturing services companies, Citi notes, pointing to Celestica (CLS; 12% of its revenue from Cisco, according to Bloomberg); Jabil (JBL -1.1%; 5.5% of revenue from Cisco); Flex (FLEX -1.3%; about 3.2% of revenue from Cisco); and Sanmina (SANM -1.8%).
Meanwhile, competing vendors like Arista Networks (ANET -0.3%) can benefit from cost cuts at Cisco, JMP Securities says, especially as 400G spreads. And growth in Cisco Security bodes well for some companies yet to report, including Palo Alto Networks (PANW +0.5%) and CrowdStrike (CRWD +2.1%).