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This Analyst Believes Cisco's Layoffs Will Fund Future M&A

The catalysts for Cisco Systems, Inc. CSCO seem to be limited, and the company would have to borrow to “sustain return of capital and M&A without cash repatriation,” Wunderlich’s Matthew S. Robison said in a report. He maintained a Hold rating on Cisco, with a price target of $27.

Cisco reported in-line F4Q16 results, against low expectations. The company reported its non-GAAP EPS at $0.63, ahead of expectations by $0.03. The beat was driven by gross margin on product sales, analyst Robison mentioned.

Revenue came in at $12.6 billion, up 2.3 percent [excluding sales from divested operations]. “Switching and wireless exceeded our expectations. Security and Collaboration grew most, as expected. Data Center server volume continues to struggle for growth in advance of broader adoption of new products,” Robison wrote.

Layoffs Announced

Management announced plans to reduce its workforce by 5,500, with the aim of reinvesting the savings. The reduction is significantly lower than what was being speculated. The analyst added, “Including the context of resource reallocation toward software, we regard it like the F2015 layoff and view it as a means of funding M&A…We regard M&A as a form of outsourced R&D for Cisco.”

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DateFirmActionFromTo
Aug 2016Deutsche BankMaintainsBuy
Aug 2016JMP SecuritiesMaintainsMarket Perform
Aug 2016WunderlichMaintainsHold

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