Cisco Doubles Down, Focused On The Road Ahead

Cisco Systems, Inc. (NASDAQ: CSCO) reported its FQ4 results, with the earning beating expectations, driven by the top line and margins.

Morgan Stanley’s James E. Faucette maintains an Equal-Weight rating, while raising the price target from $28 to $30.

FQ4 Beat

“Cisco reported upside to FQ4 expectations as security and data center switching helped offset EMEA and service provider weakness. The company is doubling down on its business model transition by increasing investment in higher growth areas,” Faucette mentioned.

The company reported its revenue and EPS for FQ4 at $12.6 billion and $0.63, ahead of the estimates. The top-line upside was largely driven by better-than-expected wireless and switching revenue, which was mostly unexpected.

Related Link: Cisco's Quarter Reinforced Jefferies Confidence, Buy Rating

The EPS beat was driven primarily driven by operating margins, which came in 150 bps ahead of expectations.

Transitioning

“Cisco has been very upfront over the last year about transitioning the business model towards more software and services. Security, collaboration and IoT are the services Cisco has been most vocal about to date, with traction continuing in FQ4,” Faucette stated.

The company also announced that it intends to increase organic investments, reinvesting almost all of its savings from the reduced headcount.

While the analyst expects a rebound in the routing segment, as refreshed routing and optical products “take root,” the timing of such a rebound remains uncertain.

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