Cisco Systems Inc. shares recorded their worst one-day drop in nearly a decade Thursday, following the network giant’s decision to circle the wagons in the form of cost cuts, as the company suffers from increasingly selective business expenses during the COVID-19 pandemic.
Cisco CSCO,
shares, which fell as much as 12% on Thursday morning, closed 11.2% at $ 42.72 for their worst drop of one day since February 10, 2011, when they fell 14.2%.
Cisco shares fell under heavy pressure late Wednesday after the company reported a decline in revenue for the fiscal quarter, a soft earnings outlook and the surprise announcement that Chief Financial Officer Kelly Kramer is retiring. In response, the company announced plans to cut $ 1 billion in cuts, which Kramer said MarketWatch will begin with a voluntary retirement offer.
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JMP Securities analyst Erik Suppiger, who has a rating of the market, notes that Cisco’s order decline of 10% was the worst since the 2008-’09 recession, pointing to the expanding impact of COVID -19 pandemic in the tech sector. Suppiger said the main motivation for Cisco’s plans is $ 1 billion in cuts.
“We consider the move as further evidence that Cisco views the pandemic as a long-term, persistent headwind that will not be resolved soon,” Suppiger said.
Raymond James analyst Simon Leopold, who has an outperforming rating and a price target of $ 49, said he was “stunned” by Cisco’s 23% drop in commercial segment orders. Leopold added that Cisco’s U-shaped recovery is “of uncertain duration”, but that the $ 1 billion company in planned cuts will help offset weaker sales.
“The cost cut balances the lower sales payout leading to modest changes in earnings,” Leopold said. “This triggers debate; will the cuts degrade Cisco’s R&D and product development or improve its ability to win sales if demand? “
JPMorgan analyst Samik Chatterjee, who has a neutral rating and lowered its price target to $ 46 from $ 50, said Cisco’s earnings showed that the company continued to rely on location systems and spending from small to medium-sized businesses. suffered during the pandemic.
“While most companies reporting this profit season have listed calendar 2Q as the trough and leading to improved trends through the rest of the year, Cisco’s declining order trends are limiting the sequential recovery, as expected by most investors after the print, Chatterjee said.
Full Revenue Coverage: Cisco’s Loud Revenue Advancement, Revenue Decline, and CFO Retirement Happens
MKM Partners analyst Michael Genovese, who has a price of $ 48, said he was sticking to his neutral rating, although sales slipped.
“We’ve been saying for a long time that investors should own Cisco if product orders accelerate, and avoid the stock if the reverse happens,” Genovese said. “We also consider Cisco to be largely a macro file. We would rather stand on the sidelines and evaluate macro trends in response to the weak orders and leadership fog. “
While Cisco’s outlook and turnover streak was “disappointing,” Evercore ISI analyst Amit Daryanani, who has an outperforming rating and a $ 54 price tag, said he sees improvement around the corner.
“We think the narrative in FY21 could be materially better seen given the combination of easier comparison, cost-benefit size reduction, hyperscale / 400GB disaster benefits and recovery on the commercial side,” Daryanani said.
To read: Cisco revenue to show how coronavirus affects small and large businesses differently
Of the 27 analysts who handle Cisco, 14 have bought reviews as overweight and 13 have held reviews, with an average price target of $ 49.67, down from a previous $ 50.05, as four analysts raised their price targets and four lowered them , according to FactSet data.
For the year, Cisco shares are down 11%, while the Dow Jones Industrial Average DJIA,
– what Cisco counts as a component – is 2.3% down. Meanwhile, the S&P 500 index is SPX,
is up 4.4% and the tech-heavy Nasdaq Composite Index COMP,
has received 23%.
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