Jefferies Keeps Cisco (CSCO) at 'Buy' Following Q4 Results; Says Receivable DSO Number was Eyesore

August 18, 2016 7:27 AM EDT
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Price: $30.07 --0%

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    32 Buy, 25 Hold, 2 Sell

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Jefferies affirms Cisco Systems (Nasdaq: CSCO) at Buy with a price target of $35 following Q4 results and outlook.

The firm commented, Our impressions of Cisco’s EPS power and risk profile didn’t change following last night’s July quarter print. Looking forward, we’re inclined to assign incrementally better valuations to the business as: 1) we see a number of opportunities for the organization to demonstrate better growth – Security, Hyper-converged Storage, and the SMB space; 2) we see additional potential for Cisco to increase their capital return to shareholders including further increases in the dividend; and 3) some of the “asteroid from space” risks for Cisco are diminished, in our view (workload migration to the Public Cloud, White Box, Hardware Virtualization). We believe that Cisco – once again – is managing through these slow-moving technology transitions quite well.

Woah – that Receivable DSO Number! At face value, this was the worst part of the quarterly print, in our view. Receivables DSO came in at 42 days, up 12 days Q/Q. Cisco hasn’t printed a 42 day DSO figure in over a decade. The obvious concern here… a very backend weighted quarter. In talking with management following the call, we understand that much of the pop in the DSO calculation came from a significant increase in Services Billings at the end of the quarter. We believe this accounted for all of the abnormal increase in DSO for the July period. It’s important distinction for Cisco investors in our view – there’s isn’t an unusual backend-weighting going on here (beyond normal seasonality).

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