While Cisco Shares Fall, Analysts Say It's Going That-A-Way!

Wall Street analysts have an opinion about the results from networking giant Cisco Systems yesterday, and it feels a little like the pictured scene from the classic 1938 Porky Pig cartoon “Porky in Wackyland.” In search of the rare Dodo bird, he seeks information from a Wackyland local who says “He went that-a-way!” while pointing in all directions.

The market has certainly picked a direction it likes, at least for today: Down. Cisco shares are falling again this morning, down more than 5 percent and trading at $16.85 a share after closing yesterday at $17.78.

Analysts meanwhile are interpreting Cisco’s quarterly earnings and fourth quarter guidance in every direction imaginable: Up, down and every other direction on the compass. Investors may be forgiven for feeling a little like Porky Pig: Confused.

Here’s a rundown:

BMO Capital Markets analyst Tim Long lowered his target price on Cisco from $22 to $17 a share after “weaker than expected guidance.” It doesn’t expect shares to improve until it shows that it’s growing again and that its gross margins have stabilized.

WJB Capital analyst Ted Moreau says Juniper Networks is gaining market share in the business of selling routers to service providers at Cisco’s expense.

Oppenheimer lowered its target price on Cisco to $22 from $24 on the weak guidance it gave for its fiscal fourth quarter. It’s hoping that the analyst’s meeting in September will give the stock a needed kick.

Goldman Sachs analyst Simona Jankowsky says she thinks Cisco’s share’s have bottomed out, and likes what CEO John Chambers had to say about gross margins in the switching business. She rates the stock “neutral.”

Canaccord Genuity analyst Paul Mansky cut his rating to “Hold” from “Buy” on the weak Q4 outlook, the tricky comparisons to recent quarters and declines in the core switching business. It lowered its target price to $20 from $24.

Eric Suppiger at Signal Hill says given Cisco’s current low valuation, it’s a good buy, but the troubles highlighted in yesterday’s results and guidance will continue. “While we are encouraged Cisco is taking steps to improve its focus and execution, we did not feel the earnings call gave significant comfort about growth and margin issues at Cisco,” he wrote in a note to clients. He maintained a “Buy” rating, but only as a long term play.

Shaw Wu at Sterne Agee called the results a “solid quarter,” and rates Cisco a “Buy” with a target of $29. In a note to clients he wrote that Cisco’s Q4 guidance was “more conservative than expected,” and that “while this is a set-back, we believe Cisco did the prudent thing in setting more reasonable expectations amid its restructuring and product transitions. Based on channel feedback, we believe its guidance could turn out conservative.” Cisco’s story, he says, is “getting better and we’d rather be a buyer at these depressed levels than wait for obvious evidence of improvement.”

Brian Marshall of Gleacher and Co. compared Cisco to “a tanker ship that will require multiple quarters to fix its long-term financial model.” He maintained his “neutral” rating and lowered his price target to $17 from $18. He calls Cisco’s current low price “intriguing” but worries about the numerous structural problems including its loss of market share, the saturation of its market, erosion of gross margins, and its moves away from its core business.

Brent Bracelin of Pacific Crest Securities goes in multiple directions at once: While arguing that Cisco’s shares are “compelling for value investors, given their low price,” he lowered his price target from $25 to $22. Like I said: That-a-way.

Meanwhile CEO John Chambers appeared on CNBC Asia overnight (video below) re-iterating the story he told analysts on a conference call yesterday. He acknowledges the weaknesses in Cisco’s switching and public sector business, and said the restructuring to get Cisco back on track is underway. It has been, and will continue to divest itself of under-performing units like the Flip Video division it unceremoniously killed last month and telegraphed that more cuts are on the way.

The company also confirmed that layoffs are coming. Some employees will get the option to take early retirement; the expense related to that could be as high as $1 billion. Others will lose their jobs, though as yet there are no indications of the number of jobs that will be affected nor any hints regarding what business units will be affected. We do know that Cisco is moving fast–Chambers repeated that several times on the call and in his CNBC appearance–and so it seems we’ll know more before July, when Cisco’s fiscal year 2012 gets underway. Bet on more Wackyland-like confusion until then.