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Cisco plunges following weak Q3, guidance, analysts see more weakness ahead

Cisco (NASDAQ:CSCO) shares plunged on Thursday as the networking equipment company reported third-quarter results and guidance that were both weaker than anticipated and though the company tried to say demand is still healthy, Wall Street analysts weren't buying it. Citi analyst Jim Suva, who has a sell rating on Cisco (CSCO), noted there has been a lot of pushback on the firm for its rating, but the decline in orders is a concern. "The deceleration in orders from +33% last quarter to +8% this quarter and enterprise order growth from +37% to zero concern us," Suva wrote in a note to clients, adding that there was a -2% negative impact from Russia, but with two price increases in the past six months, that's not encouraging. 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 the per-share price target to $52 from $65, noting that weakness in the third-quarter and guidance could potentially be explained by the situations in Russia and China, it's likely that investors will view it much differently. "While Cisco management was unwavering in their belief that these results / guide are not reflective of a slowing end demand, ... we expect investor sentiment to reflect otherwise over the near / medium-term," Rakers wrote, adding that tough year-over-year comparisons, slowing enterprise growth and competitive dynamics are likely to worry investors. Morgan Stanley analyst Meta Marshall, who rates Cisco (CSCO) equal weight with a $46 price target, cited "caution" coming out of the conference call noting that the shortfall in revenue and order expectations happened before the company has seen any "notable macro impact." "We still believe that backlog, growing IT intensity, price changes and [operating expense] discipline will ultimately protect earnings power more than investors fear (at least implied by overnight move), but we are cautious that there is another downtick to come in tone and order growth if macro conditions were to worsen, which the channel would indicate has already started to a degree," Marshall explained. 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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