Shares of Cisco (CSCO) are falling after a disappointing outlook for the second quarter of fiscal 2022. Persistent supply chain constraints which are expected to hang heavy on margins as well. Moreover, revenues came short of consensus estimates, which sparked further sell-offs.
Nonetheless, Q1 was strong in essence, with an 8% year-over-year increase in both the top and bottom lines. Notably, product orders grew 33% year-over-year. (See Analysts’ Top Stocks on TipRanks)
Expert Treading Cautiously
Following the Q1 earnings release, Needham analyst Alex Henderson weighed in on the company’s prospects. He noted that Cisco’s pipeline is reportedly strengthening. “We think Cisco is going to build backlog in FY2Q, and given the guide, likely well into CY22,” he noted.
Anderson expects supply chain issues to start letting up just as the price hikes start being well-integrated into the system in CY22. This is expected to aid the gross and operating margins.
The analyst is also encouraged by the pattern of Cisco’s cloud order growth, which has been increasing for the past couple of quarters. This pattern, according to Andrews, shows that the company is constantly gaining share in the cloud market. Moreover, its 400G products are also gaining traction among customers.
Anderson, however, is concerned with Cisco’s guidance for organic growth which is just between 2% and 4%, which is mostly considered as an indication of poor management of the supply chain.
With these observations, the analyst reiterated a Hold rating on the stock, suggesting investors wait for a better entry point to maximize returns from Cisco’s shares.
Wall Street Weighs in
The Wall Street analyst consensus is cautiously optimistic about Cisco, with a Moderate Buy rating on the stock based on nine Buys and 10 Holds. The average Cisco price target of $64.14 indicates an upside potential of 20.8%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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