Why Cisco Systems’ Stock Fell 15.5% Last Month

The networking titan’s strong fourth-quarter results were overshadowed by weak guidance, all due to the Chinese trade war.

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What happened

Shares of Cisco Systems (NASDAQ: CSCO) fell 15.5% in August 2019, according to data from S&P Global Market Intelligence. Mainly, the stock took a 12.3% haircut in a span of two days around the networking equipment giant’s earnings report.

So what

Cisco’s fourth-quarter sales rose 4.5% year over year, landing at $13.4 billion. Adjusted earnings increased 19% to $0.83 per diluted share. Both of these line items edged out the Wall Street consensus, which had been calling for earnings near $0.82 per share on revenues in the neighborhood of $13.39 billion.

At the same time, Cisco’s management offered somewhat disappointing guidance for the next reporting period. At the midpoint of the provided guidance ranges, first-quarter revenues should stop near $13.23 billion, while adjusted earnings are headed toward roughly $0.81 per share. For this period, analysts had been expecting earnings of approximately $0.83 per share on sales around $13.4 billion.

Image source: Getty Images.

Now what

The computer networking veteran is struggling to make up for slow orders from Chinese telecoms. Order volumes in that subsector came in 21% below their year-ago reading in the fourth quarter. Other sectors provided solid growth, led by a 21% boost to global sales of security products and services.

The end of the Chinese-American trade war can’t come soon enough for Cisco’s investors. That being said, the resulting discount to the share prices makes Cisco a solid buy for long-term investors with enough patience to outlast the international trade tensions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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