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Cisco Has Worst Day in Two Years as China Weighs on Outlook

Ryan Vlastelica

(Bloomberg) -- Cisco Systems Inc. shares sank on Thursday, after the company gave a first-quarter outlook that was below expectations, pressured by macroeconomic headwinds, including the U.S.-China trade war.

The Chinese market was seen as a major factor behind weakness in service-provider orders, and Morgan Stanley wrote that “outsized” macro headwinds “were too much to provide much opportunity for upside.” The firm was one of at least six to trim its price target on the stock.

Shares fell as much as 8% in its biggest one-day percentage loss since May 2017. Closing with a decline of that magnitude would represent Cisco’s worst session since November 2013, according to historical data compiled by Bloomberg. At current levels, Cisco is trading at its lowest level since February, and it has dropped more than 18% from a peak in July.

Here’s what analysts are saying about the results:

Morgan Stanley, James Faucette

“The outsized headwinds” in service-provider orders, along with weakness in China and other emerging markets, “were too much to provide much opportunity for upside” to the quarter.

The current valuation is “appropriate.” While the macroeconomic environment is worsening, Cisco’s cash flow gives it flexibility to make acquisitions or return cash to shareholders.

Equal-weight rating, price target trimmed to $49 from $51.

Jefferies, George Notter

Investors are likely “over-estimating the size of the negative top line growth inflection.”

“Cisco has traditionally been very conservative when they’ve reduced expectations,” and historically, “upsets relative to consensus have been followed by several quarters of outperformance.”

The outlook “likely contains a healthy dose of conservativism,” but there isn’t much “octane” in the stock right now.

Buy rating, price target lowered to $54 from $62.

JMP Securities, Erik Suppiger

“Orders were flat Y/Y, the worst performance in two years.”

About 70% of the company’s software revenue was generated from subscriptions, “suggesting that the company is executing on its strategy of becoming a provider of software and services.”

Market-perform rating.

Piper Jaffray, James Fish

The results were “fine overall,” although the softness should extend into the first quarter.

“Cisco is executing better than other vendors in this current macro-downturn,” and Piper is “cautiously optimistic Cisco can manage the macro.”

The post-earnings sell-off looks “slightly overdone.”

Overweight rating, target trimmed to $55 from $58.

UBS, John Roy

The company’s fundamentals are strong despite the weak first-quarter outlook.

Buy rating, price target lowered to $58 from $61.

What Bloomberg Intelligence Says:

“The company’s global IT exposure can’t dodge weakening macroeconomics, despite solidly carrying out its business-model transformation toward a healthier mix of software and recurring sales.”

-- Analyst Woo Jin Ho

-- Click here for the research

(Updates stock and chart to market open)

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Courtney Dentch

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