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Goldman Sachs Comments on Cisco (CSCO) Q2

February 13, 2014 8:53 AM EST Send to a Friend
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Price: $25.22 +0.04%

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Goldman Sachs maintained a Buy rating on Cisco (NASDAQ: CSCO) with a price target of $25.00. Analyst Simona Jankowski views Q2 results as in line.

"While overall top and bottom line results were largely in-line, gross margins of 61.3% came in toward the lower end of guidance for 61-62% and slightly below consensus at 61.9%, driven by a decline in product gross margins to 58.8%, down from 62.0% last quarter and 60.9% in the year-ago quarter. Much of the product gross margin decline was due to lower volumes (with product sales down 11% yoy and down 10% qoq), with incremental drag from mix and pricing," said Jankowski.

"Based on our analysis (using assumptions shown in the body of this note), we estimate that the volume decline likely accounted for the largest part of the margin shortfall, which implies that margins will largely recover as volumes ramp with Cisco's switching and routing product cycles in 2H CY14. That said, it will be important to watch if the discounting pressure mounts as large cloud customers become a larger percentage of the mix. Positively, Cisco more than offset the lower gross margin with lower opex, resulting in slightly higher net income, which was boosted by much greater than expected buybacks ($4bn vs. GSe $1bn) to drive $0.01 of EPS upside."

For an analyst ratings summary and ratings history on Cisco click here. For more ratings news on Cisco click here.

Shares of Cisco closed at $22.85 yesterday.




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