North America

Earnings Preview: Cisco Q1 2018 (CSCO)

By: Craig Bowles

Overview

Cisco Systems, Inc. (CSCO) is slated to report 1Q 2018 earnings after the bell on Wednesday, November 15th. The earnings release is expected at approximately 4:05 p.m. ET with a 4:30 p.m. conference call webcast available through Cisco Investor Relations. The networking equipment company is a member of the S&P 500 Index and could therefore influence direction of the index futures and other broad market gauges. Chuck Robbins replaced John Chambers as CEO on July 26, 2015.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.59 to $0.61. The current Street estimate is $0.60. (Source: Yahoo! Finance). Consensus was $0.61 three months ago.
  • Revenues: Company guidance is -3% to -1% y/y growth. Analysts expect a decrease of 2.00% y/y to $12.11 bln (range $11.99 bln to $12.18 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 2Q2018: The Street estimate is $0.58 (range $0.56 to $0.61).
  • Cisco’s trailing P/E of 18.1 compares to a five-year average of 14.6. Price/Book is 2.6 versus a five-year average of 2.2. Price/Sales is 3.6 versus a five-year average of 2.7. Price/Cash Flow is 12.5 versus a five-year average of 10.9. The dividend yield is 3.3% versus a five-year average of 2.8%.
  • Analysts view Cisco with 19 (21 last qtr) Buy, 12 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insider bought 262,788 shares over the last three months but sold a net 730,134 shares in the past year (source: NASDAQ.com). In February 2016, the company added $15 billion for stock buybacks on top of the $2 billion already available. They bought back close to $4.3 bln the last few years but bought back $9.4 bln in 2014.
  • Cisco is compared to other networking equipment companies, with quarterly results possibly impacting Alcatel Lucent (ALU), Hewlett Packard Enterprise (HPE), and Juniper Networks (JNPR).
  • Cisco shares have a 1-day average price change on earnings of 4.73%. Options are pricing in an implied move of 4.69% on earnings.

Recent News

  • 10/31: Cisco is seeking a buyer for its video-software unit, NDS Group, according to a post on Bloomberg.com.
  • 10/30: Cisco Systems will buy telecom software provider Broadsoft (BSFT) for $55 per share in cash, for an aggregate purchase price of $1.9 billion. Analysts reacted positively to the news, according to a post on Barron’s.com.
  • 10/25: Cisco and Google Cloud announced a partnership to deliver a hybrid cloud solution.
  • 10/20: Cisco bought the enterprise tech startup, Perspica, for an undisclosed amount in order to augment its AppDynamics business, according to a post on Fortune.com.
  • 10/02: Trefis forecasted that Cisco’s WLAN revenues will grow at a pace slightly lower than the industry-wide growth but will defend its share in the competitive WLAN market in the coming years. Furthermore, IDC expects cloud-based wireless acquisition Meraki to continue to drive Cisco’s enterprise WLAN segment revenues, according to a post on IDC.com.
  • 09/06: Deutsche Bank suggests free cash flow metrics are the most accurate way to gauge Cisco’s true growth value. Reported Top Line and EPS metrics are increasingly lagging indicators, and are systematically undervaluing “value creation” from CSCO’s Growth Software portfolio in Next Gen Infra Themes: Cloud Scale Security, Analytics, Automation, Internet of Things, etc., according to a post on Benzinga.com.

Summary

Chuck Robbins as CEO has brought increased executive turnover and increased acquisitions. On October 23rd, Cisco announced that they will buy telecom software provider Broadsoft for $1.9 billion. Insider selling turned to buying the last three months and they bought into strength. Stock buybacks can provide support if need be. Cisco has beaten estimates by an average of 1c over the last four quarters. Estimize consensus is for Non-GAAP EPS of $0.62 on revenue of $12.180 bln compares to analyst consensus of $0.60 on revenue of $12.11 bln. Guidance is always of interest.

 

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