Q3 Preview: Bellwether Cisco (CSCO) Could See Upside from Continued IT Spending Increases (HPQ, ALU, JNPR)
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Cisco Systems, Inc. (Nasdaq: CSCO) is trading lower ahead of the company's first quarter earnings release, expected out after the market closes tomorrow, November 10, 2010. The stock is down just 0.29% in the afternoon session.
Cisco is expected to report an EPS of $0.40 on revs of $10.73 billion. Cisco reported an EPS of $0.43 on revs of $10.8 billion, mixed to the consensus EPS of $0.42 and revs of $10.87 billion. Last year, for Q110, CSCO beat on the tops and bottom with an EPS of $0.36 and revs of $9 billion.
Shares gained a little through the quarter, jumping 3% to $21.90 at the end of the September. The stock is up 11.3% since then, and are down 1.3% on the year so far.
A simple valuation pegs Cisco with a forward P/E of 12x FY11 EPS estimates, just about on the lower-end when compared to 22.5x for Juniper Networks (Nasdaq: JNPR), 14.1x for Alcatel-Lucent (NYSE: ALU), and 8.7x for Hewlett-Packard (NYSE: HPQ).
Data from Bloomberg shows that 38 analysts have a Buy rating on the shares, 10 have a Hold, and one recommends to Sell the stock. The analysts price target average is $27.70, with a high of $32 and a low of $23.
Analysts Through the Quarter
In July, Avondale Partners started the stock with a Market Outperform and price target of $30.
August saw First Global downgrade the shares from Market Perform with Outperform Bias to Moderate Underperform.
In September, RBC Capital downgraded CSCO from Top Pick to Outperform, with a price target lowered from $28 to $26.
Summary
Cisco issued guidance in August, looking for Q111 revs of $10.64 - $10.83 billion, which came in below the consensus outlook for $10.95 billion in revs at the time.
Wells Fargo is looking for Cisco to report results to the upper-end of Wells estimates and guide Q211 in-line with Wells. WF currently is looking for revs of $10.65 - $10.83 billion in revs and an EPS of $0.40, so they expect something about the consensus of $10.73 billion in revs and EPS to come in one to two cents above the $0.40 consensus. Q211 guidance should reflect 12.5% - 14.5% growth year-over-year. The mid-point of Wells outlook points to revs of $11.05 billion and an EPS of $0.42. Wells has an Outperform on the shares, with a valuation range of $26 - $28.
Wedbush thinks that Cisco's first quarter results will point to a continued recovery in IT spending. Their checks point to an in-line quarter. Order activity improved, bolstered by strong spending in financial services, technology, and health care verticals. Wedbush also has heard that the company has been more aggressive in "the edge switching market with heavy marketing of new products and discounting to reclaim some of the lost market share and to match some aggressive promotions by competitors. In addition, we believe routing orders decelerated somewhat, as we anticipated in our model, after several strong quarters. Our contacts also indicated that there is significant momentum in the service provider verticals as orders are ramping and expected to continue for the next few quarters - especially in the wireless segment." They also expect results toward the upper-end of their guidance, which calls for revs of $10.8 billion and an EPS of $0.39. Wedbush notes that key focus items for investors will be commentary surrounding IT spending in North America, Europe, and Asia/ Pacific. They maintain their Outperform rating and $27 price target on the stock.
Kaufman Bros. says that their supply chain checks indicate that the company is in-line to report a solid quarter. Specifically, results will be helped by strength in networking stemming from renewed infrastructure spending. One situation to watch going forward would be competition from HPQ, as they move into the networking market. Kaufman is modeling for revs of $10.8 billion and an EPS of $0.42. They currently carry a Buy rating on CSCO, with a price target of $28. Notably, they also see some upside to their price target, given a "conservative" FY11 EPS estimate of $1.89 used for modeling.
Cisco Systems is expected to release their Q111 earnings on Wednesday, November 10, 2010, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
Cisco is expected to report an EPS of $0.40 on revs of $10.73 billion. Cisco reported an EPS of $0.43 on revs of $10.8 billion, mixed to the consensus EPS of $0.42 and revs of $10.87 billion. Last year, for Q110, CSCO beat on the tops and bottom with an EPS of $0.36 and revs of $9 billion.
Shares gained a little through the quarter, jumping 3% to $21.90 at the end of the September. The stock is up 11.3% since then, and are down 1.3% on the year so far.
A simple valuation pegs Cisco with a forward P/E of 12x FY11 EPS estimates, just about on the lower-end when compared to 22.5x for Juniper Networks (Nasdaq: JNPR), 14.1x for Alcatel-Lucent (NYSE: ALU), and 8.7x for Hewlett-Packard (NYSE: HPQ).
Data from Bloomberg shows that 38 analysts have a Buy rating on the shares, 10 have a Hold, and one recommends to Sell the stock. The analysts price target average is $27.70, with a high of $32 and a low of $23.
Analysts Through the Quarter
In July, Avondale Partners started the stock with a Market Outperform and price target of $30.
August saw First Global downgrade the shares from Market Perform with Outperform Bias to Moderate Underperform.
In September, RBC Capital downgraded CSCO from Top Pick to Outperform, with a price target lowered from $28 to $26.
Summary
Cisco issued guidance in August, looking for Q111 revs of $10.64 - $10.83 billion, which came in below the consensus outlook for $10.95 billion in revs at the time.
Wells Fargo is looking for Cisco to report results to the upper-end of Wells estimates and guide Q211 in-line with Wells. WF currently is looking for revs of $10.65 - $10.83 billion in revs and an EPS of $0.40, so they expect something about the consensus of $10.73 billion in revs and EPS to come in one to two cents above the $0.40 consensus. Q211 guidance should reflect 12.5% - 14.5% growth year-over-year. The mid-point of Wells outlook points to revs of $11.05 billion and an EPS of $0.42. Wells has an Outperform on the shares, with a valuation range of $26 - $28.
Wedbush thinks that Cisco's first quarter results will point to a continued recovery in IT spending. Their checks point to an in-line quarter. Order activity improved, bolstered by strong spending in financial services, technology, and health care verticals. Wedbush also has heard that the company has been more aggressive in "the edge switching market with heavy marketing of new products and discounting to reclaim some of the lost market share and to match some aggressive promotions by competitors. In addition, we believe routing orders decelerated somewhat, as we anticipated in our model, after several strong quarters. Our contacts also indicated that there is significant momentum in the service provider verticals as orders are ramping and expected to continue for the next few quarters - especially in the wireless segment." They also expect results toward the upper-end of their guidance, which calls for revs of $10.8 billion and an EPS of $0.39. Wedbush notes that key focus items for investors will be commentary surrounding IT spending in North America, Europe, and Asia/ Pacific. They maintain their Outperform rating and $27 price target on the stock.
Kaufman Bros. says that their supply chain checks indicate that the company is in-line to report a solid quarter. Specifically, results will be helped by strength in networking stemming from renewed infrastructure spending. One situation to watch going forward would be competition from HPQ, as they move into the networking market. Kaufman is modeling for revs of $10.8 billion and an EPS of $0.42. They currently carry a Buy rating on CSCO, with a price target of $28. Notably, they also see some upside to their price target, given a "conservative" FY11 EPS estimate of $1.89 used for modeling.
Cisco Systems is expected to release their Q111 earnings on Wednesday, November 10, 2010, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
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