Cisco’s Call on Future Growth Spooks Investors

Layoffs suggest a slower growth rate and expense cuts ahead

   
Cisco’s Call on Future Growth Spooks Investors

Cisco185new Ciscos Call on Future Growth Spooks Investors Double-digit earnings growth. A billion dollar stock buyback program. Record fourth-quarter revenue and a rock solid balance sheet. What’s not to love about Cisco’s latest quarterly earnings announcement?

Well, with shares down nearly 8% since its announcement last week, apparently the tech titan disappointed investors despite the solid news.

Let’s take a closer look:

Company Profile

Cisco is a producer of IP-networking and communications products for businesses and home users—including custom enterprise solutions on down to the low-cost Linksys product line of access points and switches as well as broadband cable modems. The company is a big player in the tech industry, and is known for giving investors a glimpse of coming economic and industry trends.

Earnings Buzz:

The networking giant delivered strong revenue and earnings results for the fourth quarter–beating Wall Street expectations and posting a higher profit for the seventh quarter in a row. Cisco brought in revenue of $12.42 billion, up from sales of $11.69 billion in the same period last year, and above analysts’ estimate of $12.41 billion. In addition, Cisco earned 52 cents per share, compared to 47 cents a share year-on-year and expectations of 51 cents per share.

Dropping the Bombshell

But the big news was that the company will cut 4,000 jobs–or 5% of its workforce. According to CEO John Chambers, “The environment in terms of our business is improving slightly but nowhere near the pace that we want.”

So Cisco is trying to become a leaner, meaner company through these cost cutting measures and by focusing on growth areas. Even so, the company forecasts just 3% to 5% revenue growth this quarter, highlighting the uncertainty surrounding the global IT spending market. This news is what sent shares plunging since the announcement.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. And this has been a bouncy one—in the past year it’s made a trip from D all the way up to an B, and has more recently been back-and-forth between a cautious B-ranked buy to a C-ranked hold. This is mostly due to volatile buying pressure, but its fundamentals have played a role as well. The stock gets mostly ok fundamental grades, but reports in with Cs in sales growth, earnings momentum and earnings surprises—three of the big ones in terms of what I like to look at first right now when buying a stock. And its buying pressure could sure use some improvement—the stock receives a B for its overall Quantitative Grade.

Bottom Line

As of this posting I consider CSCO a B-rated (Cautious) Buy. While the company released strong fourth-quarter results, buyer beware: It could get downgraded to a C-rating once the latest buying pressure data is plugged into Portfolio Grader.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/cisco-spooks-csco/.

©2014 InvestorPlace Media, LLC

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