Cisco Systems, Inc. (NASDAQ:CSCO) shares fell 7.7% to US$45.09 in the week since its latest first-quarter results. It was a credible result overall, with revenues of US$13b and earnings per share of US$0.68 both in line with analyst estimates, showing that Cisco Systems is executing in line with expectations. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings consensus estimates to see what could be in store for next year.
Following last week's earnings report, Cisco Systems's 26 analysts are forecasting 2020 revenues to be US$51.0b, approximately in line with the last 12 months. Earnings per share are expected to rise 7.8% to US$2.73. In the lead-up to this report, analysts had been modelling revenues of US$52.9b and earnings per share (EPS) of US$2.94 in 2020. It's pretty clear that analyst sentiment has fallen after the latest results, leading to lower revenue forecasts and a small dip in earnings per share estimates.
Despite the cuts to forecast earnings, there was no real change to the US$53.52 price target, showing that analysts don't think the changes have a meaningful impact on the stock's intrinsic value. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Cisco Systems analyst has a price target of US$65.00 per share, while the most pessimistic values it at US$45.00. This shows there is still quite a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. These estimates imply that sales are expected to slow, with a forecast revenue decline of 1.9% a significant reduction from annual growth of 1.1% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 3.8% annually for the foreseeable future. It's pretty clear that Cisco Systems's revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Cisco Systems. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. The consensus price target held steady at US$53.52, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that in mind, we wouldn't be too quick to come to a conclusion on Cisco Systems. Long-term earnings power is much more important than next year's profits. We have forecasts for Cisco Systems going out to 2022, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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