Cisco's Q1: What Was Bullish, What Was Bearish

Cisco Systems, Inc. (NASDAQ: CSCO)'s fiscal first quarter earnings marked an end to an eight-quarter streak of revenue decline.

The Analyst

KeyBanc Capital Markets' Alex Kurtz maintains an Overweight rating on Cisco's stock with a price target boosted from $33 to $39.

The Thesis

Kurtz highlighted four aspects of Cisco's earnings that he said confirm a bullish stance on the company. (See Kurtz' track record here.) 

• The overall macro tone was "stable."
• Deferred product revenue from recurring sources rose 37 percent from a year ago, showing momentum in the software model (such as AppDynamics) and Cisco ONE bundle and subscriptions.
• Catalyst 9K upgrades are "trending toward the higher content advanced bundle" in bookings data.
• The ACI/Data Center segments is seeing growth with the webscale market highlighted.

Bears have two key points that support the other side of the trade, Kurtz said:

• A 5-percent decline year-over-year in enterprise orders, as the new campus architecture delayed decisions.
• Management's commentary relating to edge routing implies a potential headwind ahead, as customers could be taking a more drastic cut to their ISR spending with SD-WAN capabilities in the market.

Price Action

Shares of Cisco were trading higher by more than 6 percent early Thursday morning at $36.43, above the stock's 52-week high of $34.75.

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