Q4 Preview: Cisco (CSCO) Looks to Continue Winning Streak In "Must Watch" Report
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Shares of Cisco (Nasdaq: CSCO) are trading lower ahead of the company's fourth quarter earnings release, expected after the market today, Wednesday, August 11, 2010. Shares are down 2.96% to $23.59 in afternoon trading.
CSCO is expected to report an EPS of $0.42 on revs of $10.86 billion. Last quarter, the company reported an EPS of $0.42 and revs of $10.40 billion, both besting Street views. Last year, for Q410, CSCO posted an EPS of $0.31 n revs of $8.50 billion, compared to the consensus EPS of $0.29 and $8.52 billion in revs.
Shares have dropped about 16.2% through the quarter, to $23.07 at the end of June. The stock is down marginally YTD, about 0.7% since the start of 2010. Shares have gained 6.1% since the end of their fourth quarter.
CSCO stock is trading at a forward P/E ratio of 15.3x, compared to 23.2x for Juniper Networks (Nasdaq: JNPR), 9.6x at Hewlett-Packard (NYSE: HPQ), and 11.7x for International Business Machines (NYSE: IBM).
Data from Bloomberg shows that 41 analysts have a Buy rating on the shares, 8 have a Hold, and zero suggest to Sell. The analyst price target average is $30.43, with a high of $33, and a low of $26. The price target offers a 24% premium to today's trading price.
Analyst Ratings Through the Quarter
In June, Auriga upgraded from Hold to Buy and increased their price target from $25 to $27.
Atlantic Securities initiates coverage with an Overweight, and price target of $32.
Kaufman Bros. initiated with a Buy rating and a $30 price target.
In July, Avondale Partners initiate started with a Market Outperform rating, and $30 price target.
Summary
Wells Fargo sees Cisco topping their fourth quarter estimates for $10.9 billion in revs and an EPS of $0.42, noting that they think CSCO "benefited from broad based strength across product groups and geographies, with data center projects a continued area of strength. We believe top-line strength, coupled with resilient gross margins and solid expense controls could drive a $0.01 - $0.02 of upside to our/cons EPS ests of $0.42. Book to bill should be [greater than] 1. We expect broad based strength across key product groups with solid Q/Q growth in the Advanced Technologies, Switches, Routers, Services, and Other segments fueled by data center consolidation, server virtualization, and mobile data growth. Cisco should also benefit from the ramp of new products (Nexus, ASR, UCS, and ISR to name a few) and significant latent demand." Wells also sees CSCO generating $2.89 billion in cash flow from ops, compared to CSCOs own guidance of $2.0 - $2.5 billion. Wells has an Overweight rating on the stock with a valuation range of $32 - $34.
Wedbush thinks that CSCO will report a solid quarter based on channel checks and companies that have already reported. "The key focus items for investors; however, will be guidance and any commentary regarding whether softening economies in North America and in Europe could negatively impact orders in the region. Given positive enterprise spending trends and our checks which suggest strong momentum in the service provider vertical for the 2H10, we think Cisco has the ability to at least meet estimates over the next four quarters and we advise investors to build positions near current levels," Wedbush notes. Additionally, their channel-checks indicate that financial services, technology, and health care companies are leading the way for IT spending. "We expect the Advanced Technologies segment to show significant growth, with application networking and enterprise wireless showing an uptick, but we believe they may underperform smaller competitors."
Mizuho Securities reiterates an Outperform rating and $29 price target on CSCO, viewing the company as "well-positioned to capitalize on key technology shifts in routing, data center convergence, and unified communications. Key to our bullish stance is our view that Cisco should sustain market share momentum the enterprise switch market, carrier Ethernet, edge and core routing segments over the next few quarters—despite increasing competition. We believe enterprise and data center demand were particularly strong this quarter."
With recent concerns about a slowing global economy, Cisco's results and comments from CEO John Chambers will be a "must watch" for any serious investor. The results and commentary could give a solid indication about the "real" course of the economy.
Cisco Systems, Inc. is expected to release their Q410 earnings on Wednesday, August 11, 2010, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
CSCO is expected to report an EPS of $0.42 on revs of $10.86 billion. Last quarter, the company reported an EPS of $0.42 and revs of $10.40 billion, both besting Street views. Last year, for Q410, CSCO posted an EPS of $0.31 n revs of $8.50 billion, compared to the consensus EPS of $0.29 and $8.52 billion in revs.
Shares have dropped about 16.2% through the quarter, to $23.07 at the end of June. The stock is down marginally YTD, about 0.7% since the start of 2010. Shares have gained 6.1% since the end of their fourth quarter.
CSCO stock is trading at a forward P/E ratio of 15.3x, compared to 23.2x for Juniper Networks (Nasdaq: JNPR), 9.6x at Hewlett-Packard (NYSE: HPQ), and 11.7x for International Business Machines (NYSE: IBM).
Data from Bloomberg shows that 41 analysts have a Buy rating on the shares, 8 have a Hold, and zero suggest to Sell. The analyst price target average is $30.43, with a high of $33, and a low of $26. The price target offers a 24% premium to today's trading price.
Analyst Ratings Through the Quarter
In June, Auriga upgraded from Hold to Buy and increased their price target from $25 to $27.
Atlantic Securities initiates coverage with an Overweight, and price target of $32.
Kaufman Bros. initiated with a Buy rating and a $30 price target.
In July, Avondale Partners initiate started with a Market Outperform rating, and $30 price target.
Summary
Wells Fargo sees Cisco topping their fourth quarter estimates for $10.9 billion in revs and an EPS of $0.42, noting that they think CSCO "benefited from broad based strength across product groups and geographies, with data center projects a continued area of strength. We believe top-line strength, coupled with resilient gross margins and solid expense controls could drive a $0.01 - $0.02 of upside to our/cons EPS ests of $0.42. Book to bill should be [greater than] 1. We expect broad based strength across key product groups with solid Q/Q growth in the Advanced Technologies, Switches, Routers, Services, and Other segments fueled by data center consolidation, server virtualization, and mobile data growth. Cisco should also benefit from the ramp of new products (Nexus, ASR, UCS, and ISR to name a few) and significant latent demand." Wells also sees CSCO generating $2.89 billion in cash flow from ops, compared to CSCOs own guidance of $2.0 - $2.5 billion. Wells has an Overweight rating on the stock with a valuation range of $32 - $34.
Wedbush thinks that CSCO will report a solid quarter based on channel checks and companies that have already reported. "The key focus items for investors; however, will be guidance and any commentary regarding whether softening economies in North America and in Europe could negatively impact orders in the region. Given positive enterprise spending trends and our checks which suggest strong momentum in the service provider vertical for the 2H10, we think Cisco has the ability to at least meet estimates over the next four quarters and we advise investors to build positions near current levels," Wedbush notes. Additionally, their channel-checks indicate that financial services, technology, and health care companies are leading the way for IT spending. "We expect the Advanced Technologies segment to show significant growth, with application networking and enterprise wireless showing an uptick, but we believe they may underperform smaller competitors."
Mizuho Securities reiterates an Outperform rating and $29 price target on CSCO, viewing the company as "well-positioned to capitalize on key technology shifts in routing, data center convergence, and unified communications. Key to our bullish stance is our view that Cisco should sustain market share momentum the enterprise switch market, carrier Ethernet, edge and core routing segments over the next few quarters—despite increasing competition. We believe enterprise and data center demand were particularly strong this quarter."
With recent concerns about a slowing global economy, Cisco's results and comments from CEO John Chambers will be a "must watch" for any serious investor. The results and commentary could give a solid indication about the "real" course of the economy.
Cisco Systems, Inc. is expected to release their Q410 earnings on Wednesday, August 11, 2010, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
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