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Cisco takes a dive on weak Q3 results, guidance; analysts see more trouble ahead

Cisco (NASDAQ:CSCO) shares plunged more than 13%, Thursday, on roundly negative reaction to the networking equipment company reporting third-quarter results and guidance that were both weaker than anticipated. And though Cisco (CSCO) Chief Executive Chuck Robbins tried to say the company is still seeing healthy demand for its products and services, Wall Street analysts weren't buying it. Citi analyst Jim Suva, who has a sell rating on Cisco's stock (CSCO), noted there has been a lot of pushback on the firm for its rating, but the company's decline in orders is a "concern". Suva said an example of Cisco's (CSCO) business slowing down could be seen in its third-quarter orders, which were up by only 8% from a year ago. That was a big decline from orders in Cisco's (CSCO) second quarter, which rose 33% on a year-over-year basis. Even more stark, in Suva's view, was Cisco's (CSCO) enterprise order growth, which went from 37% in the company's second quarter, to zero in its third quarter. Suva added that Cisco (CSCO) saw a 2% negative impact on orders from dropping business in Russia. In addition, Suva noted that some of Cisco's competitors, including Arista Networks (ANET), beat Wall Street estimates and "materially guided higher." Wells Fargo analyst Aaron Rakers, who has an equal weight rating on Cisco (CSCO), lowered his price target on the company's stock to $52 a share from $65. Rakers said that while weakness in the third quarter and guidance could potentially be explained by the situations in Russia and China, it's likely that investors will have a much different view of the situation. Rakers said that while Cisco (CSCO) management was "unwavering" in its belief that its results and outlook were not reflective of slowing end demand for its products, "we expect investor sentiment to reflect otherwise over the near [and] medium-term." Rakers said that tough year-over-year comparisons, slowing enterprise growth and competitive dynamics are also likely to worry investors. Morgan Stanley analyst Meta Marshall, who rates Cisco's (CSCO) stock at equal weight with a $46-A-SHARE price target, cited "caution" coming out of the company's conference call noting that the shortfall in revenue and order expectations happened before the company has seen any "notable macro impact" on its business. "We still believe that backlog, growing IT intensity, price changes and [operating expense] discipline will ultimately protect earnings power more than investors fear," Marshall said. "But, we are cautious that there is another downtick to come in tone and order growth." Earlier this month, Cisco (CSCO) reconfigured its security executives after a long-time executive said she was leaving the company after 22 years.

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