North America

Earnings Preview: Cisco Q3 2017 (CSCO)

By: Craig Bowles

Overview

Cisco Systems, Inc. (CSCO) is slated to report 3Q 2017 earnings after the bell on Wednesday, May 17th. 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 $0.57 to $0.59. The current Street estimate is $0.58. (Source: Yahoo! Finance). Consensus was $0.58 three months ago.
  • Revenues: Company guidance is -2% to 0% y/y growth. Analysts expect a decrease of 0.9% y/y to $11.90 bln (range $11.78 bln to $12.13 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 4Q2017: The Street estimate is $0.62 (range $0.58 to $0.66).
  • Cisco’s trailing P/E of 17.4 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 3.5 versus a five-year average of 2.7. Price/Cash Flow is 12.8 versus a five-year average of 10.9. The dividend yield is 3.2% versus a five-year average of 2.8%.
  • Analysts view Cisco with 20 Buy, 12 Hold, and 0 Sell ratings. (source:  MarketBeat.com)
  • Insider sold 387,998 shares over the last three months and a net 1,963,761 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 and used less than $4 billion the past twelve months. They also increased their qrtly dividend 5 cents to $0.26/share in early 2016.
  • 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 3.81%. Options are pricing in an implied move of 2.85% on earnings.

Recent News

  • 05/09: BMO Capital downgraded Cisco to Market Perform from Outperform on the belief that the transformation will take years, according to a post on Barron’s.com.
  • 05/04: The International Trade Commission found two more violations of Cisco patents on the part of Arista Networks (ANET), according to a post on cisco.com.
  • 05/01: Cisco will acquire Viptela for $610 million. A year ago, Viptela was valued at $900 million by its investors, according to a post on BusinessInsider.com.
  • 04/27: Credit Suisse upgraded Cisco to Outperform from Underperform, and raised the price target to $40 from $27, arguing that it can make some meaningful acquisitions, possibly Splunk (SPLK), ServiceNow (NOW), and Palo Alto Networks (PANW), and that its earnings can grow, despite challenges in its switching equipment business, according to a post on Barron’s.com.
  • 04/03: Cowen & Co. rates Cisco at Outperform citing that a survey of resellers of security technology showed the company having a high “win rate” in selling a new generation of firewall technology, and people increasing looking for “integrated” security approaches, according to a post on Barron’s.com.

Technical Review

Cisco’s stock had been range bound since the dot.com crash and the 3-year cycle between highs suggested a 2016 high, so the push higher in 2017 would seem to have something more fundamental going on here. Point and figure charts show a balance area of support at $25. (Chart courtesy of StockCharts.com)

Summary

Chuck Robbins as CEO has brought increased executive turnover and increased acquisitions. Insider selling slowed the past three months but had been impressive over the past year with increased stock buybacks supporting increased valuations. Cisco has beaten estimates by an average of 2c over the last four quarters. Estimize consensus is for Non-GAAP EPS of $0.59 on revenue of $11.88 bln compares to analyst consensus of $0.58 on revenue of $11.90 bln. Guidance is always of interest.

 

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