by Susan J. Aluise | August 12, 2014 11:28 am
Cisco (CSCO[1]), one of the information technology sector’s bellwethers, will be in focus this week as the networking giant prepares for Wednesday evening’s big report: namely, Cisco earnings for its fiscal fourth quarter.
[2]While investors are likely to see mixed results for the most recent quarter, there are several key clues to watch if you’re evaluating whether CSCO stock deserves a place in your portfolio now.
But first, a look at the expectations:
Wall Street is looking for Cisco earnings per share of 53 cents, a penny higher than the same quarter last year. That earnings growth, combined with Cisco’s strong commitment to cost cutting, could be a boon for margins. Growing sales of high-end hardware products, as well as professional services, will be welcome news as well.
On the downside, however, Cisco’s revenues are expected to decline by more than 2% in the quarter ended June 30, in large part because of slower sales in emerging markets and as the cloud market becomes increasingly crowded — and services have become commoditized.
In the third quarter, Cisco earnings beat on the top and bottom lines: Profits were $2.6 billion (51 cents a share) — 12% lower than a year ago, but beating analysts’ expectations of 48 cents. CSCO reported $11.5 billion in third-quarter revenue — 5.5% below the same quarter last year, but still beating analysts’ EPS estimate of 48 cents.
And yet, the stock surged nearly 7% on the news, perhaps giving us a sense of how CSCO might perform after earnings Wednesday.
For investors, here are three keys to watch for in the upcoming fourth-quarter Cisco earnings release:
If Chambers does announce his retirement over the next month, investors can expect CSCO stock to retreat by 5% to 10% in the short term regardless of which executive takes over.
But that does not damage the underlying value proposition of CSCO stock.
I think CSCO stock is a buy now thanks to Chambers’ good job of keeping Cisco on the right track. Should he announce his retirement this week, I would expect the news to cast a long shadow over the rest of the earnings news. However, CSCO stock has solid fundamentals and good value prospects, including a forward P/E of 11.6 — comparable to sector rivals like Oracle (ORCL[4]) and Juniper Networks (JNPR[5]), and less than Microsoft’s (MSFT[3]) 13.5. Meanwhile, CSCO’s 3.1% current dividend yield is one of the highest in the Nasdaq and should provide some semblance of stability to shares should Chambers duck out.
Information technology is a tough business because it is by nature disruptive — market leaders regularly must reinvent themselves to stay in the game, let alone dominate the “Next Big Thing.” Cisco is capable of that, and it looks attractive to buy and hold now ahead of earnings — particularly if Cisco earnings beat and the stock bounces.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
Source URL: https://investorplace.com/2014/08/cisco-earnings-stock-csco-report/
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