Shares in IT networking giant Cisco Systems, Inc. (CSCO) plunged over 5% in Wednesday’s extended-hours trading session after the company disappointed investors with its earnings guidance for the current quarter amid ongoing chip supply disruptions.
Management sees fiscal fourth quarter (Q4) earnings ranging between 81- and 83 cents, with revenue growth of 6% to 8%. Wall Street had expected EPS of 85 cents and 5.5% revenue growth. “We’re also seeing similar component shortage supply issues as our peers,” Cisco CEO Chuck Robbins said, per MarketWatch. “The good news, and this is reflected in our guidance, is that we are confident we will work through this as we have already put in place revised arrangements with several of our key suppliers,” he added.
Other key metrics came in ahead of forecasts. The company reported Q3 adjusted earnings of 83 cents per share versus a consensus of 82 cents a share. Meanwhile, revenues of $12.80 billion topped analysts’ expectations of $12.56 billion. On a year-over-year (YoY) basis, the top and bottom line grew 6.6% and 5%, respectively.
Through Wednesday’s close, Cisco stock has a market value of $221.52 billion, offers a 2.8% dividend yield, and trades 17.63% higher over the past twelve months. Year to date (YTD), the shares have added 17.25%, outperforming the tech-heavy Nasdaq index by 14% over the same period. Valuation-wise, the stock trades at 15.48 times forward earnings, slightly above its five-year average multiple of 14.44 times.
Wall Street View
After the company’s quarterly earnings, Deutsche Bank analyst Matthew Niknam initiated coverage of the stock with a Hold rating and $55 price target. Niknam says Cisco “screens attractively from several angles” but offers limited upside against consensus estimates. The analysts also noted the stock trades at a premium on a standalone and industry bias.
Coverage elsewhere on Wall Street remains mostly bullish. The stock receives 14 ‘Buy’ ratings, 3 ‘Overweight’ ratings, and 1 ‘Sell’ rating. Currently, no broker recommends selling the shares. Twelve-month price targets range from a Street-high $65 to a low of $45, with the median pegged at $55.
Technical Outlook and Trading Tactics
Cisco shares have trended steadily high since late October, with only one sizeable retracement to the 50-day simple moving average (SMA) in early March. More recently, however, a dark cloud cover pattern formed on the chart, indicating short-term weakness.
Traders and investors should view earnings-related selling pressure as a buying opportunity if the price holds the $48 level where it finds support from a multi-month horizontal trendline.
For a look at today’s earnings schedule, check out our earnings calendar.