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 Systems Inc.‘s latest earnings announcement? Well, with shares down big this morning, apparently the tech titan disappointed in last night’s report.
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 $0.52 per share, compared to $0.47 a share year-on-year and expectations of $0.51 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 Cysco 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 at today’s open.
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, August 15, 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!