Cisco (CSCO) Down 5.8% Since Last Earnings Report: Can It Recover?

It has been about a month since Cisco Systems (CSCO) last reported earnings. Shares have lost about 5.8% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cisco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Top estimates for Cisco’s third quarter earnings, YoY revenue decline

Cisco Systems reported third-quarter fiscal 2024 non-GAAP earnings of 88 cents per share, which beat the Zacks Consensus Estimate by 6.02%. The financial result decreased by 12% year on year.

Revenue fell 12.8% year-over-year to $12.70 billion, but beat the consensus estimate by 1.71%. Product revenues (71% of total revenues) declined 18.6% year-over-year to $9.02 billion.

Splunk generated $413 million in total revenue during the reported quarter. Network revenue fell 27% year-over-year to $6.52 billion. Security revenue was $1.30 billion, up 36% year-over-year. Collaboration revenues remained unchanged at $987 million. Observability revenue increased 27% to $211 million.

Services revenue (29% of total revenue) increased 5.7% year-over-year to $3.68 billion.

Subscription revenue was $6.9 billion and represented 54% of total revenue.

Quarter in detail

Regionally, Americas revenues fell 15% year-over-year to $7.37 billion and were 0.7% below the consensus.

EMEA revenues fell 9% year-over-year to $3.46 billion, but beat the consensus estimate by 5.08%.

APJC revenues fell 12% year-over-year to $1.87 billion and beat the consensus by 1.79%.

Annual recurring revenue was $29.2 billion, up 22% year-over-year. Product ARR increased by 44% year over year.

Non-GAAP gross margin increased 310 basis points (bps) from the prior-year quarter to 68.3%.

On a non-GAAP basis, product gross margin increased 240 basis points to 66.9%. Gross margin on services increased by 430 bps. to 71.6%.

Non-GAAP operating expenses were $4.32 billion, down 5.1% year-over-year. Operating expenses as a percentage of revenue increased 280 basis points year over year to 34%.

Non-GAAP operating margin increased 30 basis points year-over-year to 34.2%.

Balance sheet and cash flow

As of April 27, 2024, Cisco’s cash, cash equivalents and investments balance was $18.8 billion compared to $25.67 billion as of January 27, 2024.

Total debt (short-term and long-term) as of April 27, 2024 was $32 billion, up from $11.61 billion as of January 27, 2024.

Cash flow from operations was $4 billion, up from $0.8 billion recorded in the prior quarter.

Remaining performance obligations (“RPO”) at the end of the fiscal third quarter were $38.8 billion, an increase of 21%, with 52% of this amount expected to be recognized as revenue over the next 12 months. Product RPO increased by 29% year over year, while service RPO increased by 14%.

During the reported quarter, Cisco returned $2.9 billion through share repurchases and dividends. He bought about 26 million shares for $1.3 billion. There is $7.2 billion remaining for approval in the share repurchase program.

Conductivity

Revenue for the fourth quarter of fiscal 2024 is expected to be between $13.4 billion and $13.6 billion.

Non-GAAP gross margin for the quarter is expected to be between 66.5% and 67.5%.

Non-GAAP operating margin for this quarter is expected to be in the range of 31.5% to 32.5%.

Non-GAAP earnings are expected to be 84 cents to 86 cents per share.

For fiscal year 2024, revenue is expected to be between $53.6 billion and $53.8 billion. Non-GAAP earnings are expected to be between $3.69 and $3.71 per share.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

VGM results

Cisco currently has a weak Growth Score of F, but its Momentum Score is doing much better with an A. However, the stock is rated C on the value side, sitting in the middle 20%. investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Cisco carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Cisco belongs to the Zacks Computer – Networking industry. Another company in the same industry, NETGEAR, Inc. (NTGR), has gained 14.2% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, NETGEAR reported revenue of $164.59 million, representing a -9% year-over-year change. EPS of -$0.28 for the same period compared to -$0.19 a year ago.

NETGEAR is expected to report a loss of $0.82 per share for the current quarter, which would represent a year-over-year change of -412.5%. Over the past 30 days, the Zacks Consensus Estimate has moved +4.6%.

NETGEAR earns a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM rating of B.

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