Cisco Stock Breaks Down After Macro Pressure Leads to Weak Q1 Guidance

Cisco Systems, Inc. (CSCO) shares fell more than 8% following its fourth quarter financial results. Revenue rose 4.6% to $13.43 billion, beating consensus estimates by $40 million, and non-GAAP net income reached 83 cents per share, beating consensus estimates by one cent. GAAP net income missed analyst estimates due to a $900 million charge tied to the Tax Cuts and Jobs Act versus an equal benefit a year ago. 

Despite the positive results, the stock moved sharply lower after Cisco issued weak first quarter guidance. Management expects revenue growth of zero to 2%, or quarterly levels of $13.1 billion to $13.36 billion, compared to a $13.41 billion consensus estimate. The company expects earnings per share to come in at 80 cents to 82 cents, which is also lower than the consensus estimate of 83 cents, due to lower spending and increased macro pressure.

Analysts reacted by lowering their price targets on Cisco stock. Baird analyst Johnathan Ruykhaver lowered his price target to $54 per share but reiterated his Outperform rating. Similarly, Cowen & Co. analyst Paul Silverstein lowered his price target to $61 per share, saying that trends in the bulk of Cisco's business remain healthy despite the bearish macro backdrop.

From a technical standpoint, the stock broke down from the 200-day moving average at $50.61 to reach lows that haven't been seen since January 2019. The relative strength index (RSI) fell into oversold territory with a reading of 24.03, but the moving average convergence divergence (MACD) accelerated its bearish decline. These indicators suggest that the stock could see some consolidation before moving lower.

Traders should watch for some consolidation below trendline support and the 200-day moving average over the coming sessions. If the stock breaks above those levels, traders could see a move toward the 50-day moving average and trendline resistance around $55.40. If the stock breaks down, traders could see a move lower toward lows of around $40.00.

The author holds no position in the stock(s) mentioned except through passively managed index funds.