UBS Trims PT on Cisco (CSCO) But Maintains 'Buy'

UBS analyst, Steve Milunovich, published the results of his VAR survey which shows weakness at Cisco (NASDAQ: CSCO) despite very positive high level commentary. The PT drops to $31 and he believes near term business will meet expectations but the July quarter guidance could come down.

The UBS Networking VAR Survey reflected well on Cisco from a high level but pointed to near-term weakness for Cisco and its peer companies. As a result, he is taking a conservative view on Cisco's near-term results but note that F3Q has an extra week, which typically adds 3% of extra revenue or 2 points to growth, and should offset macro weakness.

Jan and April estimates appear achievable but the July quarter could be impacted. F2Q results are expected to be in line with the Street at $11.7bn of revenue and $0.54 in EPS, implying a sales decline of 4% sequentially, below the five-year average Jan decline of 2%. The revenue growth forecast of 3% for April is slightly above the historical average of 2% including the extra week.

The July quarter is a concern though and the analyst is forecasting sequential growth of 3%, below the Street's 5%. He is looking for F16 EPS of $2.25. Consensus estimates have changed little the last three months.

Cisco ended F1Q with 1,100 APIC controller customers—customer additions compared to VMware's addition of 300 NSX customers in C4Q. Some 40% of the VAR survey respondents indicated increased interest in Cisco's security solutions; deferred revenue growth over the last couple of quarters has been strong (26% in F4Q and 31% in F1Q). Continued momentum in UCS and acceleration of revenue growth in security are needed for the stock to work.

No change to Buy rating but the PT drops from $33 to $31 based on 13x our C16 EPS estimate of $2.31, down from 14x.

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 $22.65 yesterday.

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