North America

Earnings Preview: Cisco Q4 2017 (CSCO)

By: Craig Bowles

Overview

Cisco Systems, Inc. (CSCO) is slated to report 4Q 2017 earnings after the bell on Wednesday, August 16th. 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 $0.60 to $0.62. The current Street estimate is $0.61. (Source: Yahoo! Finance). Consensus was $0.62 three months ago.
  • Revenues: Company guidance is -6% to -4% y/y growth. Analysts expect a decrease of 4.5% y/y to $12.06 bln (range $12.00 bln to $12.15 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 1Q2018: The Street estimate is $0.61 (range $0.58 to $0.66).
  • Cisco’s trailing P/E of 16.1 compares to a five-year average of 14.6. Price/Book is 2.4 versus a five-year average of 2.2. Price/Sales is 3.3 versus a five-year average of 2.7. Price/Cash Flow is 11.7 versus a five-year average of 10.9. The dividend yield is 3.5% versus a five-year average of 2.8%.
  • Analysts view Cisco with 21 (20 last qtr) Buy, 11 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insider sold 412,248 shares over the last three months and a net 1,439,744 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 bln the last couple of 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 4.19%. Options are pricing in an implied move of 3.98% on earnings.

Recent News

  • 08/02: Deutsche Bank is bullish on Cisco into 2018 citing findings from its primary research with the enterprise, cloud and service provider IT channel, according to a post on Benzinga.com.
  • 08/01: Cisco completes $610m Viptela acquisition
  • 07/12: Bernstein has an Outperform rating on Cisco while noting results have been held back by the sluggish telco market but the rest of the company is doing great in a cloud age, according to a post on Barron’s.com.
  • 06/29: Cisco Systems laid out a vision for its growth rates through the next several years, but some analysts believe the company needs to do a large M&A deal to make those numbers, according to a post on Barron’s.com.
  • 06/21: Credit Suisse reiterated an Outperform rating on Cisco citing that the “announcements will further help Cisco move towards a recurring software and services model, while also capturing value from its software add-on,” according to a post on Barron’s.com.
  • 06/20: Cisco launched networking architecture that can leverage machine learning with a focus on subscription pricing, according to a post on MarketWatch.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 to $34.05 in 2017 was just above the 2007 high and would seem to have had something more fundamental involved. Balance area support is at around $25 and the stock is currently attempting to make a balance area above $30. (Chart courtesy of StockCharts.com)

Summary

Chuck Robbins as CEO has brought increased executive turnover and increased acquisitions. Insider selling continues but stock buybacks can still provide support. Cisco has beaten estimates by an average of 2c over the last four quarters. Estimize consensus is for Non-GAAP EPS of $0.62 on revenue of $12.102 bln compares to analyst consensus of $0.61 on revenue of $12.06 bln. Guidance is always of interest.

 

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