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Concentration comes when business customers increase spending on network infrastructure.
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Investing a modest decline after hours,
Cisco Systems
stocks traded higher on Thursday, reaching their highest level in two decades.
The rally comes as investors abandon short-term concerns about component shortages and high shipping costs, focusing instead on accelerating growth as more company revenue moves to software. hardware customers and companies that increase spending on network infrastructure.
Shares of Cisco (ticker: CSCO) rose 2.8% to $ 56.69 in the recent trading. They had previously traded up $ 57.14, a new 52-week high and their highest level since the dot-com bubble years.
Following the close of trading on Wednesday, Cisco posted revenue for its fourth fiscal quarter ended July 31 of $ 13.12 billion, up 8% from the previous year and topping the company’s forecast for the year. 6% to 8% growth. Non-GAAP earnings were 84 cents per share, toward the company’s high targeting range of 81 to 85 cents per share.
The networking giant showed that demand for its products will increase after suffering a slowdown in 2020, as many customers reduced spending during the pandemic. Cisco said orders grew in double digits across all markets and customer geographies. Product orders rose 31% overall, the highest level in more than a decade. This includes 25% growth in business customer orders, 41% smaller business customers and an impressive 160% growth in cloud customers.
Cisco also said “remaining performance obligations,” a measure of work contracted but not yet delivered, rose 9 percent to $ 30.9 billion. RPO is a measure that business software companies often use as an indicator of future performance. Cisco notes that the company earned $ 4 billion in software revenue in the last quarter, bringing the year-over-year total to $ 15 billion. CEO Chuck Robbins noted in a call with investors Wednesday afternoon that Cisco has quietly become one of the world’s largest software vendors.
One of the persistent concerns is the impact of the lack of supply on the margins. In the July quarter, non-GAAP gross margin was 65.6%, which was above the company’s projected range of 64% to 65%, a rate the company said reflected a positive product mix. . But Cisco expects results for the October quarter to show a sharper impact of higher component and shipping costs.
The company sees revenue growth for the quarter from 7.5% to 9.5%, with non-GAAP profits of 79 to 81 cents per share, at mid-point a penny of consensus on the street, with gross margins returning to be between 63.5% and 64.5%. abast. Cisco warned that pressures on supply costs would persist for at least the first half of fiscal year 2022 and potentially during the second half of the year.
Cisco surprised the street by offering year-round guidelines for fiscal year 2022, the first time it is recently recalled that it provides a detailed outlook for next year. The company sees full-year revenue increase from 5% to 7%, slightly above the old street consensus of 4.4%. Halfway through the range, the forecast implies revenue of $ 52.8 billion, above the old street consensus of $ 51.9 billion. Cisco records full-year earnings of $ 3.38 to $ 3.45 per share;
The street was generally enthusiastic in its reviews about the quarter.
New Street Research analyst Pierre Ferragu reiterated his buy rating and the $ 65 target price of Cisco shares. “The underlying trends are intact,” he writes in a research note. “Cisco still has a long way to go in recovering revenue growth and margin expansion.”
Jefferies analyst George Notter also reiterated the buy rating, while raising its target price to $ 63 from $ 56. “Despite current supply chain challenges, Cisco’s results and guidelines in July offered an insight into the continued post-Covid recovery and the underlying strength of digital transformation efforts to its customers,” Notter writes in a research note. “We continue to see the risk / reward favorably. We expect the multiple to expand as the recurring sales mix increases. ”
Barclays analyst Tim Long also remains bullish, repeating an overweight rating and raising its target to $ 62 from $ 55. He points to the lack of guidance on the EPS line due to expected margin pressures, but argues that the company maintains a conservative forecast. Long sees a “lasting front-line recovery” that is likely to outweigh short-term cost pressures. The analyst is optimistic about improving the company’s performance in the cloud sector and its growing software revenue and considers the valuation to be “attractive”.
Citigroup analyst Jim Suva is more cautious. It maintains its Neutral score, although it raises its target price to $ 55, from $ 50. He thinks some investors will likely be concerned about “the lack of EPS leverage” in the company’s outlook, though he admits he’s “impressed by Cisco’s results,” particularly the strong growth in the order.
Write to Eric J. Savitz at [email protected]