Cisco Stock Down 8% on Weak Outlook

Shares of hardware technology company Cisco Systems (CSCO) have fallen over 8% on August 15. Cisco announced its fourth quarter of fiscal 2019 (quarter ended in July) results after the market closed yesterday.

The company reported sales of $13.4 billion, a rise of 6% year-over-year. Its adjusted earnings per share rose 19% YoY to $0.83. In fiscal 2019, the company’s sales rose 7% to $51.7 billion. In the fourth quarter of fiscal 2018, CSCO reported sales of $12.64 billion and EPS of $0.70.

Analysts expected Cisco to post revenue of $13.4 billion and EPS of $0.82 in the fourth quarter. So why did Cisco stock fall despite an earnings beat?

Cisco’s guidance

Investors were unimpressed with Cisco’s guidance. The company estimated revenue growth of 2% year-over-year in the first quarter of fiscal 2020 with EPS of $0.80–$0.82. Analysts estimated EPS of $0.83 in the first quarter, driving CSCO stock lower. The company attributed its tepid guidance to weakness in China and a slowdown in tech spending.

Cisco stock is now down 16% in August 2019. Despite the recent pullback, CSCO stock has gained 10% year-to-date.

How did Cisco’s results impact its peers?

Shares of peers Hewlett Packard Enterprise (HPE), Arista Networks (ANET), and Ubiquiti Networks (UBNT) have fallen 1.7%, 1.4%, and 1.5%, respectively, today. Growing concerns over a slowdown in tech spending have persisted for a while.

Earlier this month, NetApp (NTAP) shares tanked after it released its preliminary results that were significantly lower than its estimates. Shares of DXC Tech (DXC) fell over 35% last week on poor guidance impacted by tech spending. The yield curve inverted yesterday and sent stocks tumbling on recession fears.

HPE, ANET, NTAP, UBNT, and DXC have declined 12.2%, 21%, 20.6%, 15%, and 45%, respectively, this month.

Instinet analyst lowers price target

Jeffrey Kvaal from Instinet has lowered Cisco’s price target from $53 to $47. The analyst stated, “China may weaken further, public sector seems above trend, and enterprise macro concerns may deepen.” Plus, Jeffries lowered Cisco’s price target to $54 from $62.

Cisco experienced revenue growth in the fourth quarter of fiscal 2019 across most business segments. Its Infrastructure Platform sales rose 6% to $7.87 billion, revenues from Applications rose 11%, and Security sales rose 4%.

But do investors need to be worried about a slowing macroeconomy? Will the recession hit global markets in 2020? Do you need to avoid tech stocks until demand picks up? As uncertainties mount, stay tuned to Market Realist for ongoing insights and updates into these crucial questions.