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Cisco's Long-Term View Disappoints, Revenue Outlook Down

Cisco Systems Inc . CSCO recently provided long-term (3-5 years) growth targets. Management now projects revenues to increase in the range of 1-3%, more or less stable margins and mid-single digit growth in earnings per share (EPS). Moreover, the company expects to return greater than 50% of free cash flow to shareholders.

Uninspiring Outlook Hurts Stock

Over the 3-5 year time frame, Cisco projects Infrastructure Platforms (Switching, NGN routing, Wireless, Data Center) revenues to remain almost flat, while Security, Applications and Services to grow low-mid teens, high-single digits - low teens and mid-single digits, respectively. Other (SP Video hardware) revenues are projected to decline mid-single digits.

Notably, the current top-line growth projections were lower than the company's previously provided long-term guidance at the end of calendar 2013. Per CRN, the company had then projected revenues to grow 3-6% throughout the next 3-5 years, which was also lower than the original 5-7% long-term outlook it gave in calendar 2012.

Cisco anticipates revenues of $48 billion at the end of fiscal 2017, which reflects a CAGR of 2% over 2014-2017, lower than its long-term outlook (2013). However, anticipated EPS of $2.39 in fiscal 2017, reflects CAGR of 6% over the same period, primarily backed by...