Cisco Systems' issued better-than-expected fiscal 2023 revenue guidance sending CSCO stock up on Thursday. But analysts debated the outlook for profit margins as supply chain issues ease.
Amid lowered expectations, Cisco's fiscal fourth-quarter results for 2022 topped Wall Street estimates. Cisco stock climbed 5.8% to close at 49.37 on the stock market today.
The computer networking giant reported earnings for the July quarter after the market close on Wednesday.
Cisco Stock: Revenue Outlook
For fiscal 2023, Cisco said it expects sales growth in a range of 4% to 6% vs. estimates of 3% sales growth to $52.7 billion.
"We believe the 4% to 6% revenue growth guidance for 2023 is on the conservative side given the record backlog levels and remaining performance obligations of $31 billion, $17 billion of which will be recognized in the next 12 months," said CFRA Research analyst Keith Snyder in a report.
Cisco's EPS guidance in a range of $3.49 to $3.56 was in-line with consensus estimates.
"Cisco's fiscal Q1 and full-year 2023 revenue guidance were above the Street, although gross margin continues to be tempered by components and logistics," Barclays analyst Tim Long said in a note to clients.
CSCO Stock: Product Orders Decline
Long went on to say: "Management cited continued strong demand visibility, record annual recurring revenue, and sees supply chain pressures easing in fiscal 2023. Forward gross margin is guided lower but could prove conservative due to higher prices taking effect. Cisco sees no signs of significant order cancellations or a demand slowdown."
At UBS, analyst David Vogt had a similar view. "The negative impact from aggressive component procurement resulted in (fiscal Q4) product gross margins of 61.3%, the lowest level since Q4, 2018," he said in a report. "As Cisco balances meeting customer demand to protect share, product gross margins will remain under pressure."
Adjusted earnings for CSCO stock came in at 83 cents per share, down 1% from a year earlier. Revenue was flat at $13.1 billion, including acquisitions.
Analysts estimated that Cisco would earn 82 cents per share on revenue of $12.73 billion, according to FactSet.
"While product orders declined 6% year-over-year (over a difficult comparison of 31% growth a year ago), a 15% sequential growth in product orders has signaled continued durable demand," Credit Suisse analyst Sami Badri said in a note.
At Bank of America, analyst Tal Liani said: "Cisco's commentary and results were positive overall, but there are parts that are less than ideal, partially due to tough comparisons."
He added: "Cloud orders were down in Q4, enterprise orders down 15%, public sector down 3%, commercial up 1% and service provider orders down 7%."
Cisco Stock: 2023 Sales Guidance Above Views
For its current fiscal first quarter ending in October, Cisco forecast profit in a range of 82 cents to 84 cents vs. estimates of 84 cents. Cisco projected revenue growth of 2% to 4%, compared with projections for flat sales growth.
Heading into the Cisco earnings report, the company owned a Relative Strength Rating of 26 out of a best-possible 99, according to IBD Stock Checkup. CSCO stock had declined 26% in 2022.
In addition, CSCO stock has shifted away from its core business of selling network switches and routers. With acquisitions, Cisco has aimed to increase revenue from software and services.
But Cisco's pivot to subscription software revenue has stalled. Software has hovered around 30% of total revenue for the last six quarters, said a Raymond James report.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
