Cisco's (NASDAQ:CSCO) stock dropped 6% during after-hours trading on Nov. 17 after the networking giant posted its first-quarter earnings report.

Its revenue rose 8% year-over-year to $12.9 billion, but missed Wall Street's consensus estimate by $90 million. Its adjusted net income increased 8% to $3.5 billion, or $0.82 per share, beating expectations by two cents.

Cisco expects its revenue to rise 4.5%-6.5% year-over-year in the second quarter, but analysts had expected more than 7% growth. It expects its adjusted earnings to grow 1%-4%, compared to expectations for 4% growth.

An illustration of network connections across a city.

Image source: Getty Images.

That mixed earnings report dampened the market's enthusiasm for Cisco, which had remained fairly resilient over the past year. Is it too late to buy Cisco, or does its post-earnings dip represent a good buying opportunity?

Meet the new business segments

In September, Cisco replaced its three main product segments -- infrastructure platforms, applications, and security -- with five new ones: secure, agile networks; hybrid work; end-to-end security; internet for the future; and optimized application experiences. Here's how those five new segments, along with the services division, fared in their first quarter:

Segment

Q1 2022 Revenue

Year-over-year Growth

Secure, Agile Networks

$5.97 billion

10%

Hybrid Work

$1.11 billion

(7%)

End-to-End Security

$895 million

4%

Internet for the Future

$1.37 billion

46%

Optimized Application Experiences

$181 million

18%

Services

$3.37 billion

1%

Total

$12.9 billion

8%

Source: Cisco.

The secure, agile networks division benefited from rising sales of switches, enterprise routers, and wireless hardware. That growth was mainly supported by the enterprise campus market, which offset its softer sales to the data center switching and compute markets.

The hybrid work segment struggled with sluggish demand for its perpetual calling, meeting, and contact center products. It's been expanding its cloud-based cloud calling and contact center services to offset that slowdown. However, those newer businesses still face plenty of competition from similar platforms like Zoom and Five9.

Its end-to-end security business continued to grow as the expansion of its cloud-based cybersecurity services offset the slower demand for its on-premise appliances. The internet of the future segment, which houses Cisco's cloud-enhanced routing solutions and optical chips, benefited from its recent takeover of Acacia Communications, as well as longer-distance network upgrades.

Lastly, the optimized application experiences division benefited from the growth of AppDynamics, the application performance management and analytics company Cisco acquired in 2017, and ThousandEyes, the network performance monitoring company it bought in 2020.

But mind the margins

Cisco's revenue growth looks stable, but its adjusted gross margins declined sequentially and year-over-year during the first quarter:

Adjusted Gross Margin

Q1 2021

Q4 2021

Q1 2022

Product

65.3%

65%

63.8%

Service

67.1%

67.4%

66.5%

Total

65.8%

65.6%

64.5%

Source: Cisco.

Cisco attributed those declines to higher freight and component costs related to global supply chain constraints. It expects that pressure to persist throughout the second half of fiscal 2022, and potentially reduce its adjusted gross margin to 63.5%-64.5% in the second quarter.

On the bright side, Cisco's adjusted operating margin expanded 60 basis points year-over-year to 33.3% as it reined in its other expenses, and it expects that figure to hold steady between 32.5% and 33.5% in the second quarter.

Are Cisco's long-term targets still intact?

During its investor day presentation in September, Cisco predicted its annual revenue and adjusted earnings would both increase at a compound annual growth rate (CAGR) of 5%-7% between fiscal 2021 and 2025.

Analysts expect both Cisco's revenue and adjusted earnings to increase by 6% in fiscal 2022. Cisco reiterated its investor day targets, and predicted its revenue and adjusted earnings would both increase 5%-7% this year. That confident outlook suggests Cisco can offset the near-term pressure of its supply chain bottleneck with price hikes, cost-cutting measures, and bigger buybacks.

Cisco's operating cash flow declined 16% year-over-year to $3.4 billion during the quarter as it grappled with its supply chain challenges, but it still paid out $1.6 billion in dividends and spent $256 million on buybacks.

It's not too late to buy Cisco's stock

Cisco's stock rallied about 30% over the past 12 months as its core networking business gradually recovered from the trade war and the pandemic. Its rosy long-term outlook indicates that recovery will continue as it expands its higher-growth product segments and sticky subscription-based services.

Like many other tech companies, Cisco Systems faces temporary supply chain constraints. That pressure could throttle its near-term revenue and margins, but these challenges are not permanent. Meanwhile, the stock still looks like a bargain at 16 times forward earnings. It also pays an attractive forward dividend yield of 2.6%.

Cisco might not be an exciting growth stock anymore, but it certainly isn't too late to buy this blue-chip tech stalwart as a defensive play in this volatile market.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.