Preliminary F2Q21 Results: Flat Revenue but Guiding for Growth

10 February 2021

Key Points

  • CEO Chuck Robbins indicated that Cisco “continue[d] to see signs of gradual improvement” in segments that account for nearly three-quarters of its product orders. While it is seeing gradual improvement, revenue was flat YoY. The company said it was “cautiously optimistic” and cited recent surveys that found that IT spending could grow in 2021.
  • Cisco is widely viewed to be positioned to take advantage of both the Covid-19 pandemic eventually ending and rising security concerns surrounding Huawei; however, its infrastructure platforms (>50% of sales) declined ~3% per year from F2013 to F2020.
  • Non-GAAP EPS guidance for F3Q21 was for $0.80-0.82, which is in line with the midpoint of previous consensus. Revenue guidance of YoY growth of +3.5% to +5.5% ($12.40-12.64bn), is slightly above the previous consensus of $12.32bn. 
  • The stock is trading at a forward PE of 14.9x, above its three-year average PE of 14.1x. Over the last three years, the stock has traded from a low of $33 in March 2020 due to Covid-19 concerns to a high of $58 in July 2019. Cisco is trading at a significant valuation discount to its peers, which average a 26.0x forward PE, but its TTM revenue declined 4.0% while its peers’ averages grew 6.9%.
  • Read our initiation and other reports on Cisco Systems on our website.

Our Insights

Enterprise softness and flat revenue seem to be an issue with investors. While Cisco saw strength in its Cat9k, DC switching, security, and WebEx products, it seems the market was expecting more as the stock fell 2.6% after the report. Even a reported fifth consecutive quarter of “very rapid growth” in its web-scale business was overshadowed by investors’ expectations for more.

The 5G opportunity for Cisco is significant, and the company sees the industry as being in the “early” stages of the transition to 5G cellular. Cisco has 35 customers using its 5G products and highlighted mobile backhaul and core upgrades. Management expects 5G to be “a tailwind over the next few years” for Cisco.