Cisco (CSCO) Plunges After a Weak Revenue Forecast and 4,000 Layoffs

Cisco (CSCO) slumped last week, after the networking giant reported its fourth quarter earnings that accompanied a major reduction of its workforce. Cisco earned an adjusted $0.52 per share, topping the consensus estimate by a penny. Revenue rose 6% year-on-year to $12.4 billion, which was in line with analyst estimates. Daily Chart

The company's product (hardware) revenue rose 6.4% to $9.74 billion, topping the $9.70 billion that analysts had expected.
Service sales rose 5.5% to $2.68 billion, missing the consensus estimate of $2.73 billion. The increased usage of smartphones and tablets have increased the need for higher speed connections, which have boosted demand for Cisco's networking products, which include routers, switches and servers. Cisco is bouncing back along with the rest of the networking industry, after government cuts in the first half of the year hit most companies' top line growth. Increased competition from Juniper (JNPR), Hewlett-Packard (HPQ) and Huawei Technologies have also caused prices and margins to decline across the industry. Higher spending from government agencies and enterprise customers during the quarter, along with Cisco's practices of bundling products together at a discount, helped the company grow its top line during the quarter. Cisco has also been a shopping spree over the past three years, spending $10.6 billion on 59 companies to expand its reach into software and security products. Despite these improvements, Cisco announced plans to lay off 4,000 employees, or 5% of its workforce. In addition, it stated that it would take a restructuring charge during the first quarter. Along with the layoffs, Cisco offered a weak revenue forecast for the rest of the year. Investors were disappointed by the announcement, causing shares to plunge 7%. Edward Jones & Co. analyst Bill Kreher stated that those bearish factors suggested that the company's efforts to win market share back from competitors hasn't been paying off. Despite the pullback, shares of Cisco are still up 28% over the past twelve months. CEO John Chambers expressed confidence in Cisco's long-term growth, stating, "My confidence in our ability to be the #1 IT Company is increasing. Our fourth quarter was a record on many fronts. We also generated $4 billion in operating cash flow in the quarter, another record." Cisco trades at 10.7 times forward earnings, suggesting that the company is undervalued, with a PEG ratio of 1.27, indicating steady earnings growth over the next five years. The stock also pays a quarterly dividend of $0.17 per share -- a 2.8% yield at current prices. Other News About CSCO Cisco Cutting Jobs as Turnaround Hit by Sales Slowdown Cisco slashes 5% of its workforce. Cisco Earnings Hit The Mark, But Stock Slumps On Soft Guidance Cisco's guidance spooks investors. Other Stocks in the News This Biotech's Single Egg Will Never Hatch Is Dendreon doomed? Which Of These Smaller Companies Could Roche Buy? Will Roche buy these companies? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Aug 22, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

Posted in ...