- Cisco Systems beat the Wall Street consensus on both the top and bottom lines.
- CSCO shares rose more than 5% on the news, topping $48 in after-hours trading.
- US CPI data was largely in line with inflation, tempering gains for growth stocks but helping blue chips.
- The Dow Jones led other indices in the regular session on Wednesday.
Few expected much from the profits of Cisco Systems (CSCO) on Wednesday, so when earnings scheduled for after the close of the fiscal fourth quarter beat expectations, shares rose 5.7%. Shares were flat in the week leading up to earnings and are down about 10% so far this year.
High industry inventories for Cisco networking hardware, coupled with many customers’ focus on capex for artificial intelligence (AI) chips, had fueled a shrinking streak at the San Jose-based company. But the company’s impressive showing on Wednesday is all the more reason not to count out the legacy tech powerhouse, especially with good signs from its acquisition of Splunk.
Cisco’s performance will help the Dow Jones index, of which it is a minor member, on Thursday. The Dow led other indexes on Wednesday as July Consumer Price Index (CPI) data in the morning session prompted markets to take a less dovish bet on the Federal Reserve’s (Fed) expected rate cut on September 18. The market now expects a 25 basis point cut instead of its previous expectation of 50 basis points.
Cisco Systems Earnings News
Wall Street was expecting Cisco to earn $0.85 per adjusted share on revenue of $13.54 billion. Instead, the company led by CEO Chuck Robbins reported $0.87 in adjusted EPS on revenue of $13.64 billion.
Although this was a 10% year-over-year decline in sales, Wall Street clearly expected worse. Moreover, they were delighted by how robust future revenues already look.
Cisco saw product order growth of 14% year-over-year overall, but 6% when excluding Splunk. The company achieved an adjusted gross margin of 67.9% in the quarter, putting it in the top tier of companies on Wall Street in terms of pricing power. It’s no surprise that BMO Capital placed it on its High-Quality Stock Screen earlier this week. Piper Sandler was also hopeful about Splunk’s results ahead of the release.
Total subscription revenue for the full fiscal year was $27.4 billion, representing 51% of the company’s total revenue. Subscription revenue typically earns companies higher valuation multiples as it is considered persistent. Annualized recurring revenue of $29.6 billion, which includes Splunk’s $4.3 billion, increased 22% year over year.
Much of the subscription revenue came from the software division, which saw revenue increase 9% year-over-year in the quarter and software subscription revenue up 15% year-over-year.
Management said it expects to add about $100 million of incremental revenue to the next quarter (i.e., the current quarter). Guidance for the next fiscal year is largely in line with prior consensus at $55.6 billion at the midpoint. And full-year adjusted EPS guidance was given at $3.55.
The Dow Jones FAQs
The Dow Jones Industrial Average, one of the world’s oldest stock market indexes, is made up of the 30 most actively traded stocks in the United States. The index is weighted by price rather than capitalization. It is calculated by adding up the prices of the component securities and dividing by a factor, currently 0.152. The index was founded by Charles Dow, also founder of the Wall Street Journal. In recent years it has been criticized for not being sufficiently representative, as it only tracks 30 companies, unlike broader indexes such as the S&P 500.
There are many factors that drive the Dow Jones Industrial Average (DJIA). The main one is the aggregate performance of the companies that comprise it, as revealed in quarterly corporate earnings reports. US and global macroeconomic data also contribute, as they influence investor confidence. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA, as it affects the cost of credit, on which many companies rely heavily. Therefore, inflation can be a determining factor, as well as other parameters that influence the decisions of the Federal Reserve.
Dow Theory is a method for identifying the major trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both move in the same direction. Volume is a confirmation criterion. The theory uses elements of peak-trough analysis. Dow Theory posits three phases of a trend: accumulation, when smart money starts buying or selling; public participation, when the general public joins the trend; and distribution, when smart money leaves the trend.
There are several ways to trade the DJIA. One is to use ETFs that allow investors to trade the DJIA as a single security, rather than having to buy shares of all 30 companies that comprise it. A prominent example is the SPDR Dow Jones Industrial Average ETF (DIA). Futures contracts on the DJIA allow traders to speculate on the future value of the index, and options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds allow investors to purchase a portion of a diversified portfolio of DJIA securities, providing exposure to the overall index.
Cisco Systems Stock Chart
Cisco stock’s performance on Wednesday afternoon has been helped by the fact that it has been depressed for some time. This can be seen below on the weekly chart, which shows that CSCO has been below its 50-week and 200-week simple moving averages (SMA) since at least April. The stock was trading at just 15 times past earnings before the earnings call.
With CSCO now back near July resistance at $48, the next barrier lies at the high $49s where the aforementioned SMAs are trending. The weekly MACD has been traveling below the zero threshold lately, which tells us that there has been little movement towards an uptrend.
For now, Cisco will remain a mainstay for dividend investors until it can reclaim the $50 level. The stock has been trading within a wedge pattern for the past four years, and Wednesday’s move from ascending trendline support will give many the impression that it is on track to move back toward descending resistance line near $54.
Cisco Systems weekly stock chart
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
