Last week Cisco presented its Q1 earnings for the fiscal year 2021. While the results were not spectacular, they did exceed investors’ expectations, sending the stock price higher.
Cisco reported revenues of $11,9 billion for the quarter, and the market estimated $11.88 billion. On those revenues, the adjusted earnings per share (EPS) came in line with what the market expected ($0.7).
If we look at the Q1 results in comparison with the 2020 fiscal year, there is nothing to celebrate – revenue is down 9%, net income 26%, and diluted EPS 25% under the GAAP metric. However, as the management was quick to point out, in the meantime, the world faced a pandemic. The macro uncertainties did affect the Cisco business and will continue to do so in the period ahead.
Yet, the management remains optimistic. After all, this is a company that strives to be a trusted technology partner for many companies that accelerate their digital-first strategy.
Reactions After the Cisco Earnings
The overall market reaction was positive. The market participants liked the fact that Cisco has beaten bottom and top lines. It also liked the fact that the management offered upbeat guidance for the period ahead. One of the most important things to consider is the shift in the company’s revenue direction as it is continuing its transition toward more recurring revenues. Such revenues are viewed as bringing stability in times of recessions, and that is positive to consider for future earnings.
As a result, RBC Capital Markets raised its Cisco share price target to $49 from $48 on optimistic management. RBC sees a 19% upside potential in the Cisco businesses, mainly based on the upcoming 5G infrastructure needs. On the flip side, it did note that the drop in service provider orders poses a threat to the forecast.
New Street research upgraded Cisco to Buy while Credit Suisse remains Neutral. However, the latter raised its price target from $36 to $41.
While it continues to see its revenue declining for the Q2 of the fiscal year, Cisco expects to achieve $0.74-$0.76 Non-GAAP EPS and a Non-GAAP Gross Margin Rate of 64%-65%.
All in all, a good quarter for Cisco in a challenging business environment. The management sees the need to continue transforming the business by offering more software and subscriptions, delivered impressive growth in operating cash flows and even returned to investors close to $3 billion.