North America

Earnings Preview: Cisco Systems Q1 2017 (CSCO)

By: Craig Bowles

Overview

Cisco Systems, Inc. (CSCO) is slated to report 1Q 2017 earnings after the bell on Wednesday, November 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.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.58 to $0.60. The current Street estimate is $0.59 (range $0.58 to $0.60). (Source: Yahoo! Finance). Consensus was $0.60 three months ago.
  • Revenues: Company guidance is -1% to 1% y/y growth excluding the SP Video CPE Business for Q1 2016. Analysts expect a decrease of 2.7% y/y to $12.34 bln (range $12.23 bln to $12.51 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 2Q2017: The Street estimate is $0.59 (range $0.56 to $0.63).
  • Cisco’s trailing P/E of 14.9 compares to a five-year average of 14.5. Price/Book is 2.5 versus a five-year average of 2.2. Price/Sales is 3.2 versus a five-year average of 2.5. Price/Cash Flow is 11.8 versus a five-year average of 10.7. The dividend yield is 3.2% versus a five-year average of 2.4%.
  • Analysts view Cisco with 23 (25 last qtr) Buy, 12 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insider sold 431,176 shares over the last three months and a net 2,415,112 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 also increased their dividend 5 cents to $0.26/share.
  • 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 4.37%. Options are pricing in an implied move of 4.41% on earnings.

Recent News

  • 10/07: Network infrastructure has been moving away from boxes built with all the ingredients by Cisco and Nokia (NOK) to a cheaper alternative where software runs on top of commodity hardware, according to a post on Barron’s.com.
  • 10/03: Credit Suisse has an Underperform rating on Cisco but says the stock is one of the most well liked names by long only accounts receiving sponsorship from domestic and international asset managers who see Cisco having continued EPS growth through cost cutting, according to a post on Barron’s.com.
  • 09/27: Cisco plans more than $4 billion worth of expansion in Mexico, according to a post on Reuters.com.
  • 09/26: UBS cites data from market research firm Dell’Oro and suggests Cisco is losing share in networking equipment to China’s employee-owned Huawei and Arista Networks (ANET). Cisco should benefit in the near-term, however, from service providers upgrading their core routing equipment, according to a post on Barron’s.com.
  • 08/20: Cisco Systems announced it will lay off 5,500 workers, or 7% of its workforce. The verbiage offered by Cisco was that the action was “to optimize” its “cost base” to minimize “lower growth areas of our portfolio” and to “further invest in key priority areas,” such as the Internet of Things, according to a post on Barron’s.com.

Technical Review

Cisco’s stock has found resistance at around $30 since 2001, so recently pushing above that level could be significant. The 3-year cycle between highs points to a 2016 high. Point and figure technicians have tentatively increased their bullish price objective to $49 from $41.50. (Chart courtesy of StockCharts.com)

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Summary

Chuck Robbins took over as CEO last year and executive turnover has been on the upswing since. Insider selling has been impressive for the past year with increased stock buybacks supporting increased valuations. Cisco has beaten estimates by an average of 3c over the last four quarters. Estimize consensus is for Non-GAAP EPS of $0.61 on revenue of $12.490 bln compares to analyst consensus of $0.59 on revenue of $12.34 bln. Guidance is always of interest.

 

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