Please ensure Javascript is enabled for purposes of website accessibility

Dow Jones News: Cisco's Sales Slump; Microsoft Target Raised

By Timothy Green - Feb 13, 2020 at 2:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Cisco expects another revenue decline next quarter, and an analyst sees growth opportunities for Microsoft.

The Dow Jones Industrial Average (^DJI 1.34%) was volatile on Thursday, down 0.28% by 1 p.m. EST after suffering deeper losses earlier in the day. A change in reporting related to the COVID-19 virus that originated in China led to a spike in the number of cases and deaths. The number of cases in China is closing in on 60,000, with more than 1,350 deaths in the country.

Dragging down the Dow was Cisco Systems (CSCO 3.26%), which reported better-than-expected revenue and earnings but was unable to win over investors amid a downturn in demand. Meanwhile, Microsoft (MSFT 2.03%) managed a small gain after an analyst raised their price target on the stock.

Cisco slumps despite earnings beat

Networking hardware provider Cisco is going through a downturn, with some customers pushing back or downsizing orders. The company managed to beat analyst estimates across the board with its fiscal second-quarter report, but the market wasn't impressed. Shares of Cisco were down 5.3% by early afternoon.

Cables plugged into computer equipment.

Image source: Getty Images.

Cisco produced revenue of $12 billion, down 3.5% year over year but $30 million above analyst expectations. Services and security were the best segments for Cisco. Security revenue jumped 9% to $748 million, while services revenue rose 5% to $3.33 billion. Revenue in both the infrastructure platforms and applications segments was down 8%.

Product orders were down 6% overall for Cisco, driven by an 11% plunge from service provider customers. Enterprise product orders were down 7%; commercial orders were down 4%; and public sector orders were flat.

Non-GAAP (adjusted) earnings per share came in at $0.77, beating analyst estimates by $0.01 and rising from $0.73 in the prior-year period. Share buybacks drove much of the per-share earnings growth, with the diluted share count down 5.4% over the past year.

Looking ahead, Cisco expects third-quarter revenue to be down 1.5% to 3.5%. Non-GAAP EPS is expected between $0.79 and $0.81, compared to $0.78 in the third quarter of last year. Longer term, Cisco sees 5G, Wi-Fi 6, 400-gigabit Ethernet, and the shift to the cloud as secular growth drivers.

"While we continue to experience some pause in customer spending related to the uncertainty in the global macro environment, our long term growth opportunities remain unchanged," said Cisco CEO Chuck Robbins during the earnings call.

Cisco has gone through downturns before, so this is nothing new. The company has so far been able to keep the bottom line growing, and its shift to software, particularly subscription software, should help smooth out the ups and downs. A full 72% of Cisco's software revenue during the second quarter was from subscriptions, up 7 percentage points year over year.

Including Thursday's decline, shares of Cisco are down about 1% over the past year.

Microsoft gets analyst boost

Moving slightly higher on Thursday was Microsoft, which received an optimistic price target from analysts at Evercore. Evercore raised its target on the stock from $190 to $212, citing plenty of growth opportunities over the next few years. Shares of Microsoft had gained 0.1% by early afternoon.

Evercore sees Microsoft's Azure cloud platform maintaining a competitive advantage thanks to its hybrid cloud capabilities, large enterprise footprint, and non-conflicted business model. Amazon.com's Amazon Web Services is the market leader in public cloud infrastructure, but companies that compete with the other parts of Amazon may not want to rely on the e-commerce giant for cloud computing.

Evercore also expects Microsoft to expand its total addressable market in business applications and gaming. Microsoft is set to launch a new Xbox game console later this year.

This upgrade comes two days after Microsoft was ordered by the FTC to provide information about small acquisitions that weren't reported to antitrust agencies. The FTC is probing whether Microsoft and other tech giants engaged in anti-competitive behavior by snuffing out potential competitors via acquisitions.

Investors have grown increasingly optimistic about Microsoft over the past year, pushing the stock up more than 72% in that time.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$266.82 (2.03%) $5.32
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$50.60 (3.26%) $1.60
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,654.59 (1.34%) $431.17
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,307.37 (4.11%) $91.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.