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Investors Frown on Cisco Q1

Cisco's earnings today got fiscal 2008 off to a healthy start, as expected, although the company's stock is sagging after hours.

Cisco's non-GAAP net income of 37 cents per share beat out the analysts' estimate of 36 cents, according to Thomson First Call . (See Cisco Reports Q1.)

Analysts had been anticipating another cheery quarter from Cisco, which kicked into high gear last quarter by raising its forecasts. Cisco is now saying sales could grow 12 to 17 percent per year in the long run. (See Cisco Gets Bold With Guidance.)

But following a day when the stock market was down, Cisco's shares fell in early after-hours trading, down $2.63 (8%) at $30.12. It's possible investors were banking on even better news, considering how upbeat Cisco has been during its last few earnings calls. That appears to be a wider theme developing in the tech market. (See Acme Shares Beaten After Earnings.)

As usual, CEO John Chambers used the earnings call to note Cisco's own adoption of collaborative, Web-based applications, a "Web 2.0" trend the company thinks will become a major trend among enterprises. "I cannot overstress the importance of leading this market transition from products to processes," he said.

For its first quarter, which ended Oct. 27, Cisco reported revenues of $9.6 billion and net income of $2.2 billion, or 35 cents per share, compared with fourth-quarter revenues of $9.4 billion and net income of $1.9 billion, or 31 cents per share.

For its first quarter a year ago, Cisco reported revenues of $8.2 billion and net income of $1.6 billion, or 26 cents per share.

Cisco predicted second-quarter revenues would be up 16 percent from the previous year. That comes out to roughly $9.79 billion -- a shade less than the $9.81 billion analysts were forecasting for the second quarter, according to First Call.

— Craig Matsumoto, West Coast Editor, Light Reading

jasanz 12/5/2012 | 2:59:07 PM
re: Investors Frown on Cisco Q1 I dont still understand the 10% drop... Cisco's Chambers did what he said he would do, 3 months ago... Is the market not happy unless CSCO grows 20%???
paolo.franzoi 12/5/2012 | 2:59:04 PM
re: Investors Frown on Cisco Q1
Well, to be fair....

In normal environments, the real question is why a company justifies a PEG (P/E to Growth) ratio over more than 1. Cisco is so large that it no longer grows disruptively. It sails along doing what it does (and does very well).

Without potential explosive growth, PEG ratios will trend toward 1. Thus over time, one would expect Cisco's P/E ratio to 18 - 20.

Now for the cash, yeah Cisco has to start figuring out how to return the cash to the shareholders.

seven
firstmiler 12/5/2012 | 2:59:04 PM
re: Investors Frown on Cisco Q1 Pretty much... market expects at least 20% growth for the PE premium and 30% if you want to be classified as a "growth" company... otherwise if you want to grow at 15% or less you best crank up the dividends and expect a market average PE (~12).

FM
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