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  4. Cisco dives 12% after giving disappointing earnings guidance, but BofA defends it as 5G is poised to drive growth in 2021

Cisco dives 12% after giving disappointing earnings guidance, but BofA defends it as 5G is poised to drive growth in 2021

Matthew Fox   

Cisco dives 12% after giving disappointing earnings guidance, but BofA defends it as 5G is poised to drive growth in 2021
  • Cisco dived as much as 12% on Thursday after the company reported fiscal fourth quarter earnings that beat analyst estimates, but announced disappointing guidance.
  • The networking company saw a double-digit decline in its core business amid the COVID-19 pandemic during the quarter, while its software subscription business continues to grow as an overall percentage of revenue.
  • Additionally, CFO Kelly Kramer announced her retirement, but will remain with the company until a replacement has been found.
  • Cisco will look to cut up to $1 billion in costs through a reorganization that will result in job cuts and early retirements for some employees.
  • Bank of America defended Cisco in a note on Thursday, as it looks to 5G, WiFi 6, and other technologies to drive growth into 2021.
  • Visit the Business Insider homepage for more stories.

Cisco dived as much as 12% to $42.38 on Thursday after the networking company reported disappointing revenue guidance into the next quarter, signaling that weakness stemming from the COVID-19 pandemic hasn't completely vanished.

Particularly, the pandemic has hurt Cisco's enterprise and commercial business as customers continue to "delay their purchasing decisions in certain areas," CEO Chuck Robbins said on its earnings call.

Here are the key numbers:

Revenue: $12.2 billion, versus analyst estimates of $12.1 billion
Adjusted earnings per share: 80 cents, versus analyst estimates of 74 cents

While earnings beat analyst estimates, the company's fiscal first quarter guidance is what jolted its stock. Cisco expects first quarter revenue to decline 9-11% year-over-year. It also foresees earnings per share in a range of 69 cents to 71 cents, well below analyst estimates of 76 cents.

Read more: Bank of America shares a simple stock-trading strategy with a track record of repeatedly beating the market — including the 20 companies that best exploit it now

To cut back on costs, Cisco said it would initiate a reorganization of the company that will include job cuts and early retirement for some employees, resulting in a savings of up to $1 billion on an annualized basis.

Additionally, Chief Financial Officer Kelly Kramer announced her retirement, but will remain with the company until a replacement has been found. Kramer has been finance chief of Cisco for eight years.

Despite the negative reaction from investors, Bank of America defended Cisco in a note published on Thursday, reiterating its buy rating, and lowering its price target to $52 from $55, implying potential upside of 22% from current levels.

Bank of America said upcoming deployments of new technologies should help drive growth for Cisco once the macro environment stabilizes into 2021, particularly 5G, WiFi 6, 400G, and Optical, according to the note.

BofA also highlighted one bright spot within Cisco's earnings report, saying that growth in its Security business was "driven by broad portfolio strength" thanks to the cloud and "continued momentum" in Duo and Umbrella.

Finally, BofA said it believes "the likelihood of M&A activity is greater than before," as Cisco looks to expand into "new adjacent growth areas," according to the note.

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