Goldman Sachs Comments on Cisco's (CSCO) Q3
Goldman Sachs reiterated a Buy rating on Cisco (NASDAQ: CSCO) and raised its price target to $28.00 (from $26.00). Analyst Simona Jankowski made note of positives in Q3.
"We reiterate our Buy on Cisco, as several meaningful positives in the quarter should begin to chip away at the bear thesis, at least in the near term," said Jankowski.
"(1) Gross margins of 62.7% were well ahead of consensus of 61.3%, and product gross margins recovered sharply to 61.4% from 58.8% last quarter. This is consistent with our view that last quarter’s decline was primarily volume-related, and thus reversible, contrary to the bears’ view that it was the result of pricing pressure from SDN. (2) Product bookings were flat yoy, well ahead of our expectation of -4% yoy and above the -4% yoy run-rate of the last 2 quarters. We estimate this implies that orders grew 8% qoq, well above the 3-year average of 2% for the April quarter. Book to bill was “comfortably above one.” (3) Routing was 8% and switching was 2% above GS/consensus estimates. The Nexus 9k (new high-end switch) customer count rose from 20 in F2Q to 175 in F3Q, with 1,000 more in the pipeline, while NCS and CRS-X (new high-end routers) orders grew ahead of expectations. These are all high-margin products, which we expect will drive meaningful product cycles into 2H," said the analyst.
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Shares of Cisco closed at $22.81 yesterday.