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Cisco Tumbles After Soft Q1 Earnings Guidance

Cisco Systems, Inc. (CSCO) plunged 6.44% in after-hours trade Wednesday on the back of declining fiscal Q4 revenues and downbeat guidance for the current quarter. The company, which manufactures networking hardware and security software, reported quarterly sales of $12.15 billion, down from year-ago revenues of $13.43 billion.

Meanwhile, adjusted earnings for the period came in at 80 cents per share compared to 83 a share in the quarter ended July 2019. However, the San Jose-based company’s top- and bottom-line figures surpassed Wall Street expectations by 0.50% and 8%, respectively.

Through Wednesday’s close, Cisco stock has a market capitalization of $203 billion, yields an enticing 3.05%, and trades just 2.52% higher on the year. Performance has improved over the past three months, with the shares gaining around 12%.

Soft Forward Guidance

Management forecast Q1 adjusted earnings guidance of 69 cents to 71 cents and a revenue decline of 7% to 9%.  Analysts had projected earnings of 76 cents and $12.25 billion in sales for the quarter, representing about a 7% decline.

Software Focus

The company said it plans to acquire network intelligence company ThousandEyes in the quarter for $1 billion to provide a range of remote work and learning solutions. In recent years, Cisco has made a strategic shift to generate more revenue from software and service solutions to compete with cloud offerings from tech heavyweights, Inc. (AMZN), Microsoft Corporation (MSFT), and Alphabet Inc. (GOOGL).

“By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations,” Cisco Chief Executive Chuck Robbins said in a statement accompanying the quarterly results, per MarketWatch.

Wall Street Outlook

Despite the stock’s lackluster performance relative to the technology sector, analysts remain modestly bullish. The stock receives 13 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 13 ‘Hold’ ratings. Price targets range from as high as $60 to as low as $41, with a consensus of $50.05. This represents a 4% premium to Wednesday’s $48.10 close.

Technical Outlook and Trading Tactics

Since testing the low 30s in mid-March, Cisco shares have made a Nike swoosh-like recovery. Over the past two months, the price looks to be carving out the right shoulder of an inverse head and shoulders pattern – a formation that typically signals a market bottom. Furthermore, the 50-day simple moving average (SMA) crossed above the 200-day SMA last month to indicate a new uptrend. Traders should use any weakness as a buying opportunity, providing the stock remains above the June 11 low at $43.64. Look for a move up to the $57.50 level, where price funds overhead resistance from a horizontal trendline.