Cisco has been telling us for a while that they aren’t worried about the current business challenges they face. Their current business results back up this resilient outlook.
Given the macroeconomic and geopolitical challenges that are supposed to be facing technology companies these days, particularly the shrinking demand that has shown itself in the technology sector, people have been eagerly anticipating the earnings call this week from networking giant Cisco Systems to better assess the temperature of both the company and the industry as a whole.
The results are now in and while this earnings call didn’t have anything groundbreaking or really that surprising in it, it did have something in it that markets are particularly fond of, and that is consistency.
Analysts have been worried about things that have real potential to cause a reversal in Cisco’s fortunes beyond just the pullbacks we’ve seen in their stock prices related to market activity as a whole, perhaps causing the company to underperform relative to the market and perhaps even fly in the face of the increasing stock prices that we’re seeing overall lately.
While much of the movement that we see in stock prices are driven by overall market sentiment, stocks do stand out from one another apart from these directional forces, and we look toward a company’s business performance and outlook as guidance on what we may expect as far as these deviations go.
Cisco has been on a very nice run up in the last year and a half, adding over 50% to its stock price since August 2017. That may pale in comparison to increases we’ve seen in some other stocks, but given the size and importance of this company, together with the duration and magnitude of this move, makes this all quite impressive and meaningful indeed.
Cisco is still off its all-time high of $49.14 per share which it put in last October 3, the day before the market correction of 2018 Q4 started, but we’re now at $47.50, and only $1.64 away from taking out that high and looking to establish some new ones.
The Concerns We’ve Had with Cisco Hasn’t Really Stalled Their Progress
The December move down and the 2019 recovery is pretty standard for tech stocks like this, and for instance, we’ve seen the exact same thing happen to the broader tech market. Cisco’s stock moves really don’t stand out among the norm here, but when people are particularly concerned with the outlook of the business lines that the company is in and you are keeping up with the broader sector, this can be good news.
While analysts have been concerned about Cisco as well as the sector in general, company officials have been telling us that the macroeconomic and geopolitical gloom that we may believe is out there just doesn’t matter much to them, and that they can withstand these forces and come out well.
As is sometimes the case, it was the company’s updated response to the effect of these conditions, or the lack of such an effect, that people were really looking forward to in this earnings call. The numbers had to be there, but few expected much of a surprise here, and we were really looking for Cisco to maintain their view that they are not in any real trouble from this shrinking demand overall.
Analysts had Cisco’s earnings per share pegged in at 72 cents, where the company had told us to expect between 71 and 73 cents per share. The number came in on the high end of the narrow spectrum that the company forecast, and 73 ended up being the number put on the board.
This can be seen as mildly bullish, but not really to a very meaningful degree, as this is only a hair over what the analysts believed would happen. We could add though that the company getting this right does suggest that they are closely in tune with what is going on, and with this prediction coming in pretty much spot on, this lends further credibility to the commentary that went along with these numbers.
Net income came in at $2.82 billion, compared with a loss of $8.78 billion during the same period a year ago, a notable improvement. Analysts had revenue for the quarter projected at $12.42 billion, the company predicted $12.48 billion, and the actual number came down in the middle, at $12.45 billion.
Once again, we have a result that is meeting the expectations, and while this may not be something that is going to set a stock ablaze, it should serve to further stabilize it by allaying concerns that these numbers should be coming in lower than they are due to the negative influences that are out there.
That idea has been put to bed for now at least, and we then can turn to what the company sees as its outlook in the near term. We do see cases where the earnings results have been fine, or even good, but the company tells us at the same time to expect things to struggle, and this is how we can see results beating expectations but the stock suffer from the announcement.
Cisco CEO Once Again Predicts Continued Strength
Cisco CEO Chuck Robbins continues to cast off fears of a slowdown, perhaps even flaunting his company and the industry as a whole’s ability to continue to perform well in spite of these challenges.
“I’ve been amazed at the resilience that we’ve seen around the world in light of all the macro environment and the geopolitical dynamics, whether it’s a shutdown, or it’s U.S.-China trade, or it’s Brexit, or its stress in Italy, or it’s political unrest in certain emerging countries,” Robbins tells us.
He also shared that he hasn’t really seen much in the last 90 days to suggest that these issues are pulling us down very much, in a way that cannot be balanced off by company performance. This is consistent with his statement during the last earnings call when he told us he wasn’t concerned about such things affecting the company’s bottom line.
With the same outlook and the same results, it does appear that Cisco is weathering these storms quite well. A positive outlook needs to be backed up by the numbers though, and this time it was.
Cisco is projecting further gains next quarter, and projects earnings to come in at 78 cents a share, up 5 cents from where they are now, which if this comes to pass, should continue to propel the company forward.
While a company’s outlook being positive is good news, it’s also important to back up the talk with real results. Cisco is currently doing a good job at both and this bodes well for them for the near future at least.