Cisco Systems shares are sinking Thursday morning following a disappointing financial outlook from the networking giant after the close on Wednesday. As I noted in a previous post, the company actually reported better-than-expected results for the fiscal third quarter ended in April, but guidance for the July quarter was well shy of Street estimates. The company is promising to cut $1 billion in costs, and cautions staff that layoffs are coming among both employees and contractors. While some observers think the time to bottom fish the stock has arrived, other analysts are backing away from the shares.

• Robert W. Baird analyst Jayson Noland this morning cut his rating on the stock to Neutral from Outperform. “Management has acknowledged its primary challenges, though we don’t believe significant public exposure and switching gross margin issues will be corrected in the near to medium term,” he writes. “We could see some upside to the stock given restructuring activities, but longer-term pricing and gross margin challenges will limit multiple expansion, in our view.” He cuts his target on the stock to $20, from $22.
• Canaccord Genuity analyst Paul Mansky reduced his rating on Cisco shares to Hold, from Buy, with a new target of $20, down from $24. “We applaud the bold corrective initiatives recently announced and can see wheels in motion that may have our prior Value/GARP thesis ultimately coming to fruition in 2012,” he writes in a research note. “However, the next two quarters (at minimum) will be execution heavy and catalyst light – exacerbated by switch segment scrutiny and anniversary of difficult comparisons. As such, we are stepping to the sidelines on what has been a challenged thesis and looking to re-engage as fundamentals show signs of stabilization – possibly late this calendar year.”
• BMO Capital analyst Tim Long repeated his Market Perform rating, while cutting his target to $17, from $22. “Guidance was considerably worse than expected and as management works to refocus and realign the business,we expect there to be further lumpiness,” he writes. “Public sector weakness continues to weigh on results and has offset what appears to be a robust enterprise demand environment. Switching continues to underperform, and CSCO’s efforts to stabilize the business will likely go a long way in determining its ultimate fate.”
• Wunderlich Securities analyst Matthew Robison repeats his Hold rating and $20 target. “The
  company is not without market opportunity, but competition is making for tough comparisons, especially in switching,” he writes.
• Auriga USA analyst Sandeep Shyamsukha maintains a Hold rating and $19 target. “We remain on the sidelines as we expect intensified competition and commoditization of data center switching to pressure growth and margins for the foreseeable future,” he writes.
• Gleacher & Co. analyst Brian Marshall keeps a Hold rating, while trimming his target to $17, from $18. “While we are intrigued by CSCO’s low valuation (only approximately 6x enterprise value to CY12 free cash flow), there are far too many structural challenges for us to get positive at current levels,” he writes. “Specifically, we are most concerned with the following: limited growth opportunities, market share loss, TAM [total addressable market] saturation, margin erosion and a migration away from core markets.”

But a few bulls remains.

• Indeed, Ticonderoga Securities analyst Brian White asserts that now is the time to buy the stock; he has a $28 target on the shares. “The combination of axing unrealistic financial targets and taking full responsibility for Cisco’s challenges over the past year, while outlining actions to simplify the company, announcing plans to trim costs by $1 billion and continuing to prune any underperforming businesses was a refreshing tone that we believe is setting up the early stages of a turnaround at Cisco,” he writes. “Given the combination of these steps taken by Cisco and a bottoming out in the company’s sales cycle, we believe value investors should now begin buying the shares.”

This morning, bulls are in short supply. CSCO is down 84 cents, or 4.7%, to $16.94.

By: DocMemory
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