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Why Cisco Systems Stock Slumped 13.1% in February

By Keith Noonan - Updated Mar 3, 2020 at 7:47PM

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The network-hardware giant hit a fresh 52-week low last month.

What happened

Shares of Cisco Systems (CSCO -0.62%) fell 13.1% in February, according to data from S&P Global Market Intelligence . The stock fell after the company reported second-quarter earnings and moved lower later in the month as concerns about the impact of the novel coronavirus intensified. 

CSCO Chart

CSCO data by YCharts

Cisco reported second-quarter results after the market closed on Feb. 12, reporting revenue of roughly $12 billion that was in line with the market's expectations and non-GAAP (adjusted) earnings per share of $0.77 that topped the average analyst estimate by a penny. Investors may have been concerned by order declines at the business, which were down 4% year over year because of weakness in China. Selloffs for the broader market amid coronavirus concerns pushed the stock lower as the month progressed.   

Cisco's logo.

Image source: Cisco.

So what

The COVID-19 coronavirus outbreak has dampened the global economic outlook, and it created the conditions for a week of record sell-offs in the U.S. stock market at the end of February. Signs that the spread of the virus is accelerating have heightened the prospects of global recession this year according to some analysts, and coronavirus-related pressures have spurred the U.S. Federal Reserve to lower lending rates and prompted companies, including Cisco, to pull out of conferences and shift development and product-release schedules.

Now what

Cisco expects its sales to decline between 1.5% and 3.5% year over year in the third quarter. The company's adjusted gross margin rate is projected to be between 64.5% and 65.5%, and management is guiding for adjusted earnings per share between $0.79 and $0.81 -- up roughly 2.6% year over year at the midpoint of the target. However, the company noted that its guidance didn't account for potential disruptions to its global supply chain stemming from the novel coronavirus.

Shares trade at roughly 15.5 times expected forward earnings and have a 3.6% dividend yield.

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