Cisco Earnings to Come Up Flat (CSCO)

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Cisco (CSCO) earnings land in the middle of next week and this tech-sector bellwether had better not disappoint. After all, CSCO isn’t expected to grow much year-over-year as it is, and CSCO has been weighing on other tech stocks in 2014.

Cisco blue-chip stocks CSCOCisco earnings are forecast to come in flat vs. last year’s quarter at 53 cents per share, according to a survey of analysts by Thomson Reuters. Revenue is projected to remain essentially unchanged at $12.2 billion.

That leaves it up to the CSCO forecast and and positive commentary it can offer about the trajectory of its business if it’s going to boost share prices, including its own.

Tech is actually having a very good year, at least in terms of stock market performance, even as Cisco stock fails to punch its weight.

Indeed, the tech sector of the S&P 500 has been a market leader, gaining more than 15% for the year-to-date. CSCO stock, however, has gained a sector-lagging 12% on the year. (To be fair, CSCO stock is outperforming the broader market by more than two percentage points in 2014.)

Analysts at more than one investment bank have concluded that splitting CSCO into separate companies — like Hewlett-Packard (HPQ) is doing — won’t unlock any additional value. Rather, this mature business need to focus on expanding its footprint in the cloud. To that end, Cisco is investing $1 billion in the cloud over the next two years.

CSCO Stock Floats on the Cloud

That helps bolster the bull case for some analysts who see Cisco stock trading at a discount to the broader market on an earnings basis. An analyst at Atlantic Equities recently initiated coverage of Cisco stock with an “overweight” rating (essentially a “buy”), thanks to that discount and new wares.

As the analyst wrote in a note to clients:

“The company has recently launched product refreshes in its core networking business and recent order momentum suggests revenue should reaccelerate in the back half of FY15 (Jul). With switching typically contributing 30% and routing 17% of company overall revenues, this provides significant support to currently modest consensus expectations.”

As such, the market will pay extra attention to any color CSCO can give regarding the critical networking business. After all, one thing that has the market wringing its hands over Cisco stock is an erosion of its market share as the cloud and internet of things offer new areas of growth.

To be sure, CSCO still dominates in its markets, but not by the huge margins it once did. Indeed, CSCO now owns 62% of the worldwide switching market and 56% of the routing market, according to Atlantic Equities.

That contributed to Cisco’s revenue declining 3% in the most recent fiscal year, something that hasn’t happened in five years.

Another area of scrutiny in the Cisco earnings release will be its recent acquisition of Metacloud. Cisco made the purchase in order to accelerate the building out of its global intercloud — a sort of super-cloud to meet the specific requirements of the Internet of Everything in which everything from thermostats to refrigerators are connected.

No, Cisco doesn’t need a beat-and-raise quarter — not when Cisco stock is having such a solid year — but it would certainly help when earnings growth is forecast to be hard to come by for the next couple of quarters at least.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/cisco-earnings-stock-csco/.

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