Cisco Systems: Should You Buy The Dip?

cisco systems

If earnings and revenue were the most important factors in an earnings report, Cisco Systems would be sitting pretty right now. But it’s not. In fact, the stock took a major blow after last week’s earnings report, dropping 7% since Thursday’s close. So what happened and should you avoid the stock in the near future? Let’s take a look at the essentials:

Fiscal Q1 2016 earnings per share came in at $0.59, beating analyst expectations by $0.03. That’s also up 9.3% year over year.

Revenues were $12.68 billion, up 3.6% from this time last year, and beating the consensus estimate by $30 million.

Guidance for FQ2 came in well below the target from analysts on both revenue and earnings.

Cisco expects 0% to 2% revenue growth during the next quarter, compared with the consensus of 5.1% growth.

Earnings per share forecasts were $0.53 to $0.55, below analyst expectations of $0.56.

Trouble’s a’brewing

“Our guidance reflects lower than expected order growth in Q1, driven largely by the uncertainty of the macro environment and currency impacts,” said Cisco CEO Chuck Robbins in the FQ1 report. Those headwinds will continue to plague Cisco in the near future.

“Despite these headwinds, I believe we are executing very well. We are moving very fast to capture new opportunities and I feel good about how we are positioned for the second half of the year,” said Robbins.

That may or may not be correct, but one thing is for sure. There may be more to this 3% drop in enterprise orders than Cisco wants investors to believe.

“While weaker macro trends certainly played a role, we believe there is more to the story,” writes Guggenheim’s Ryan Hutchinson. “Our checks suggest that, despite management’s statements to the contrary, the weak enterprise outlook is partially a result of uncertainty around future network architectures as more workloads migrate to the cloud. With this added risk to Cisco’s top-line outlook, we see little reason for shares to move higher”