North America

Earnings Preview: Cisco Systems Q2 2017 (CSCO)

By: Craig Bowles

Overview

Cisco Systems, Inc. (CSCO) is slated to report 2Q 2017 earnings after the bell on Wednesday, February 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.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.55 to $0.57. The current Street estimate is $0.56 (range $0.55 to $0.58). (Source: Yahoo! Finance). Consensus was $0.59 three months ago.
  • Revenues: Company guidance is -4% to -2% y/y growth excluding the SP Video CPE Business. Analysts expect a decrease of 3.2% y/y to $11.55 bln (range $11.41 bln to $11.97 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for 3Q2017: The Street estimate is $0.58 (range $0.55 to $0.60).
  • Cisco’s trailing P/E of 15.0 compares to a five-year average of 14.6. Price/Book is 2.5 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 11.8 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 23 Buy, 12 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insider sold 192,676 shares over the last three months and a net 2,380,456 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 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 4.69%. Options are pricing in an implied move of 3.57% on earnings.

Recent News

  • 02/03: IHS Markit expects Cisco’s dividend at 28c a quarter from 26c. Yield 3.6%, according to a post on Barron’s.com.
  • 01/25: Cisco plans to acquire AppDynamics in Q3 for approximately $3.7 billion. Analysts admit the price is high but worth it, according to a post on Barron’s.com.
  • 01/18: William Blair has an Outperform rating on Cisco. Discussions with value-added resellers who sell Cisco equipment showed a “pick up” in December and January in North America. Piper Jaffray talked with 41 resellers in the U.S. and Europe and heard relatively good things for Cisco, according to a post on Barron’s.com.
  • 12/12: After the International Trade Commission ruling that Arista Networks (ANET) infringed two patents alleged by Cisco, Wells Fargo believes Cisco could lose market share as Arista machines are cheaper and have more capabilities, according to a post on Barron’s.com.
  • 12/10: Cisco now wants to be seen as a star in security. Subscription-based network-security software could lift the shares 25%, according to a post on Barron’s.com.

Technical Review

Cisco’s stock has found resistance at around $30 since 2001. The 3-year cycle between highs suggested 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 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 3c over the last four quarters. Estimize consensus is for Non-GAAP EPS of $0.57 on revenue of $11.586 bln compares to analyst consensus of $0.56 on revenue of $11.55 bln. Guidance is always of interest.

 

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