Cisco Insiders Are Shedding Their Shares
There have been some noteworthy insider activity in shares of Cisco (NASDAQ: CSCO) over the past year but it is, ultimately, nothing for investors to worry about. Insiders made 25 transactions on a TTM basis with no buying but, based on our analysts, irrelevant to share prices. The total of selling is worth about 1% of 1% of the market cap and insiders don’t own that much of the stock, to begin with. At this stage in the game, Cisco has been around long enough for the early investors and insiders to have taken most of their profits off the table. Insiders own less than 0.05% of the stock, less than most of the institutions that hold it, and the institutions have been net buyers.
Insidertrades.com data reveals institutions and large shareholders control about 75% of the stock and have been net buyers over the past year. Buying among institutions has outpaced selling by more than 2 to 1 and we think that pace will accelerate now that shares are trading at a deep discount.
Mixed Results And Weak Guidance Send Cisco Lower
Cisco reported a mixed quarter but there are some caveats for investors to consider. The $12.9 billion in revenue missed the consensus estimate by 70 basis points (a slim margin) but is up 8.1% over last year and knocking on the door to two-year growth. The revenue may have been stronger if not for supply chain disruptions but the company did not try to quantify the difference. Cisco says demand is broad-based across all product lines and the transition to a services company is on track. Annualized recurring revenue grew 10% to $21.6 billion and accounts for about 40% of the net.
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Moving down, the company experienced some margin pressure but less than expected, and that was offset by a decrease in operating costs. On the bottom line, the GAAP EPS of $0.70 beat the consensus by $0.03 while the adjusted $0.82 beat by $0.02 and outpaced revenue growth by more than 2000 basis points. Looking forward, the company is expecting revenue growth to continue and is expecting the next quarter to accelerate by 4.5% to 6.5% YOY with EPS in the range of $0.80 to $0.082 versus the consensus of $0.82. The full-year guidance is equally tepid in the eyes of the analysts but we see upside risk in the numbers. There are glimmers of improvement within the supply chain, if supply chains begin to flow more smoothly Cisco could easily top guidance and consensus.
The Analysts Have Not Lost Faith In Cisco Systems
The analysts have not lost faith in Cisco Systems despite the softness in revenue and guidance. The average rating is a firm Hold verging on Buy and the only analyst’s activity we’ve seen since the report is bullish. Sami Badri at Credit Suisse Group maintained an Outperform rating but lowered the price target by $1 to $73. The $73 price target is not only 30% above the current price action but it is the Wall Street high price target as well. Notably, over the past 90 days, the consensus price target is up more than 13% and we think it will move higher. Cisco is fundamental to tech infrastructure, its business is only going to get stronger.
The Technical Outlook: Cisco Pulls Back To Support
Shares of Cisco did not respond well to the Q1 results or guidance but we think the pre-market action could be overblown. Price action is down more than 7.0% and below a level that we would consider to be a strong support level. If the price action doesn’t regain the upper side of the $53 level it could be in for a big decline. If price action is able to rebound intraday, like we think it will, the stock will most likely enter a trading range before moving higher sometime next year.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Cisco Systems (CSCO)||$56.23||+0.1%||2.63%||20.90||Hold||$62.50|