- Cisco beat Wall Street consensus for the fiscal third quarter.
- CSCO stock dropped 4.4% in Thursday’s premarket.
- Management raised guidance for the next quarter.
- CSCO stock needs to hold onto $45.70 as its only prominent support nearby.
Cisco Systems (CSCO) stock lost 4.4% early Thursday after the maker of networking hardware produced fiscal third quarter results late Wednesday that were quite good. Even the outlook for the next quarter was solid, but this turned out to be no match for a pessimistic market.
Washington’s debt ceiling showdown looks unlikely to be resolved without major cuts to spending or a technical default on the nation’s debt – both of which are negative for the equity outlook. Still, positive remarks on the debt standoff from JPMorgan CEO Jamie Dimon has lent some optimism to the market on Thursday with Dow, S&P 500 and NASDAQ 100 futures gaining on the margin.
Cisco Systems earnings news: Q4 guidance raised across the board
Cisco reported $1.00 in adjusted earnings per share (EPS) in the quarter, which was 3 cents better than expectations. Revenue of $14.6 billion also bested Wall Street consensus by a little over $200 million.
Sales rose nearly 14% YoY with robust growth in the Secure/Agile Networks division (+29% YoY) and a downturn in the Collaboration segment (-13% YoY). Gross margin rose to 65.2% in the quarter from 63.9% in the directly prior quarter.
Annualized recurring revenue rose 10% YoY in the product space and 3% YoY on the services side. The slower growing services side of the business is larger with $13.1 billion in annual recurring revenue, while the produce end of Cisco has annualized recurring revenue of $10.8 billion.
"In Q3 we delivered record revenue and double-digit growth in both software and subscription revenue,” said CEO Chuck Robbins. “As key technologies like cloud, AI and security continue to scale, Cisco's long-established leadership in networking, and the breadth of our portfolio position us well for the future."
Software sales grew 18% YoY at a time when many other software companies have seen slowing growth.
For the fourth fiscal quarter, management raised guidance. They put YoY revenue growth between 14% and 16% and said adjusted EPS should arrive at a midpoint of $1.06 in their range.
Cisco stock forecast
Another reason this sell-off is strange is that the daily chart was setting CSCO stock up nicely for a renewed uptrend until earnings came out. The Moving Average Convergence Divergence (MACD) indicator recently showed a bullish crossover, and CSCO stock was about to close the gap created on April 20 by rising to $48. The 9-day was also just about to break above the 21-day moving average.
That wish now appears over, and CSCO shares are sitting near the long-term resistance/support level of $45.70. A break there will create a sell-off in which the market is unlikely to rescue the falling stock until it reaches the demand zone between $39 and $41. That region fortified the CSCO share price on multiple occasions between May and October of 2022.
CSCO daily chart
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