Cisco continues to disappoint investors

The company beats on earnings and revenue for the quarter, but sales are expected to remain in decline this year.

By Benzinga Feb 12, 2014 6:28PM
The Cisco logo is seen at the NCTA Cable Show in Washington, DC, on June 11, 2013 (© Andrew Harrer/Bloomberg via Getty Images)By Louis Bedigian

Cisco (CSCO) has a new trend on Wall Street: Investors flee whether it beats consensus or not.

This happened during the company's fiscal first quarter, when Cisco reported a profit of 53 cents a share, beating the Street estimate by 2 cents. Now, it has happened again.

Wednesday afternoon, Cisco reported a second-quarter profit of 47 cents a share -- a penny above the Street estimate. Earnings per share were down 8 percent from a year earlier, which might have been one of the things that disappointed investors. 

Revenue arrived at $11.2 billion, beating the Street estimate of $11.03 billion. Sales were down 7 percent from a year earlier. The stock fell more than 4 percent in after-hours trading.

"Cisco guided pretty conservatively, so everyone's assuming that the company is not necessarily as bad as feared," Pacific Crest analyst Brent Bracelin told Benzinga before the market close. "I think there's a lot of debate around that, just given the weakness we've seen in emerging markets."

Bracelin said that he expects the slowdown in emerging markets to be a "multi-quarter headwind." But he didn't detect a lot of risk going into Wednesday's earnings.

"For a stock that is a value-oriented stock (it's paying a dividend), I don't see a lot of downside risk," he added.

Cisco raised its quarterly dividend to 19 cents per share from 17 cents. But the company also announced that it expects its third-quarter sales to decline by 6 percent to 8 percent.

"Things are challenged, [but] this is probably as bad as it gets," Bracelin added.

Cisco's third-quarter profit is currently expected to fall within the range of 47 cents to 49 cents a share, which is nearly in line with the Street's estimate of 48 cents

The company is forecasting a full-year profit of between $1.95 and $2.05 a share versus the Street estimate of $1.98 a share.

Ups and cowns

Cisco has had its share of ups and downs over the last few years, but the stock looked good for the first half of 2013. 

It is not quite clear if Cisco will continue heading south or if it will finally enjoy a sustainable growth spurt. There were signs of hope in December, when the stock jumped 10.8 percent between Dec. 13 and Dec. 31. Cisco continued to rise in January 2014 but took a dive at the end of the month.

Cisco might see continued struggles

Quarter after quarter, investors remain skeptical of Cisco's future, regardless of its performance.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

More from Benzinga

Feb 12, 2014 7:27PM
Great products. Rarely fail. I like Cisco equipment, and wish more cable companies used their products.
Feb 13, 2014 12:57AM
You want a great core router?  Go with the Alcatel-Lucent XRS-20.  That's a router that rocks!  I've seen it in action. You can check out some of its specs on the Alcatel-Lucent web site.
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