Cisco Systems Stock Bestows Another Buy the Dip Opportunity

Network communications giant Cisco Systems NASDAQ: CSCO stock has finally been selling off despite strong top and bottom line growth. The world’s leading networking company is experiencing robust strength and double-digit annual growth despite the underperformance of its shares. The Company was a benefactor of the pandemic as more infrastructure buildout was a necessity to accommodate the data traffic and demands from stay-at-home mandates. The pandemic reshaped the notion of an elastic office which has continued to stick around as part of the new normal during the reopening. Cisco has not experienced any type of reversion with the reopening, instead, the backlog continues to grow to a record $14 billion. Robust demand for its products surpassed 30% growth for its third consecutive quarter. It’s enterprise division delivered 37% order growth which is the highest level in 12 years. Certain hardware and shipments were delayed due to supply chain constraints which are expected to continue throughout the rest of fiscal 2022. The Company did narrow its top line guidance for the fiscal full-year 2022, which along with the sell-off in benchmark indices and rising interest rates has caused shares to deflate. This bestows buy-the-dip opportunities for prudent investors as shares trade at just 15.3X forward earnings and another $15 billion was authorized for its stock buyback program.

Q2 Fiscal 2022 Earnings Release

On Feb. 16, 2022, Cisco reported its fiscal Q2 2022 results for the quarter ending January 2022. The Company reported earnings-per-share (EPS) of $0.84 versus consensus analyst estimates for $0.81, a $0.03 beat. Revenues rose 6.4% year-over-year (YoY) to $12.72 billion, beating analyst estimates for $12.67 billion. Non-GAAP margins were 34.3% versus prior guidance of $32.5% to 33.5% and up from 33.3% in fiscal Q1 2022. Continued robust demand resulted in third quarter of over 30% total product order growth. Total ARR is up 11% YoY to $21.9 billion in fiscal Q2 2022. The Company increased the quarterly dividend to $0.38 per share and approved a $15 billion increase to the stock buyback program. Cisco CEO Chuck Robbins commented, “We continue to see incredibly strong demand across our portfolio, emphasizing the criticality and relevance of Cisco's innovation. Our robust order strength, record backlog and double-digit growth in annual recurring revenue position us well to deliver growth."

In-Line Guidance

Cisco issued inline fiscal Q3 2022 EPS guidance in the range of $0.85 to $0.87 versus $0.87 consensus analyst estimates. The Company expects a 3% to 5% increase in revenues to come in between $13.19 billion to $13.44 billion versus $13.29 billion analyst estimates. Fiscal Q4 non-GAAP operating margin is expected between 32.5$ to 33.5%. The Company sees fiscal full-year 2022 EPS coming in between $3.41 to $3.46 beating analyst estimates of $3.42 and narrows revenue expectations to 5.5% to 6.5% from 5% to 7% prior guidance which is $52.56 billion to $53.06 billion versus $52.75 billion. The Company expects supply constraints to continue into the second half of fiscal 2022. Hybrid cloud and work solutions will be a key driver moving forward and clients are in the early phases of next-gen platform purchases.

Analyst Ratings

Despite strong results, the Company experienced a number of analyst downgrades on the heels of its narrowed top line guidance. On March 10, 2022, Wells Fargo downgraded Cisco shares to Equal Weight from Overweight with a price target reduction to $65 from $70. They noted that backlog is peaking and shares likely will be rangebound as it will have trouble generating more than 1.5% to 2% incremental revenue growth. Citigroup downgraded shares to a Sell on April 22, 2022, with a $45 price target. They cite that supply chain challenges are materially hurting its ability to procure parts as competition takes market share.

CSCO Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily frames provides a precision view of the landscape for CSCO stock. The weekly rifle chart formed an inverse pup breakdown with a falling 5-period moving average (MA) at $53.82 followed by the 15-period MA at $55.48. The weekly lower Bollinger Bands (BBs) sit at $49.04. The weekly 200-period MA sits near the $49.14 Fibonacci (fib) level. The weekly stochastic mini inverse pup leaned through the 20-band. The weekly market structure low (MSL) buy triggers on the $55.89 breakout. The daily rifle chart downtrend stalled with the 5-period MA sloping up at $51.86 and 15-period MA slipping at $53.70. The daily stochastic crossed up towards the 20-band test. The daily 50-period MA sits at $54.83. Prudent investors can look for opportunistic pullback levels at the $52.05 fib, $50.68 fib, $50.20 fib, $49.24 fib, $47.95 fib, $47.07 fib, $46.37 fib, and the $45.84 fib level. Upside trajectories range from the $57.37 fib up towards the $68.37 fib level.