CSCO Stock Earnings Preview: Cisco Going From Good to Great

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Even before investors have fully digested news that a new CEO will soon be taking the helm, Cisco Systems, Inc. (NASDAQ:CSCO) will be stirring the pot again.

The networking company will report its fiscal third-quarter results on Wednesday, after the close, which is sure to prod plenty more movement for CSCO.

Giving credit where it’s due, the Cisco earnings announcement is being ushered in with a lot of enthusiasm surrounding Cisco stock. CSCO shares are up 27% over the past twelve months and still knocking on the door of new 52-week highs, while some analysts believe the introduction of several new products could drive Cisco stock from their current price of just under $30 to as high as $39 per share.

More important right now — and more pressing — is the fact that the Cisco earnings report due on Wednesday could mark the point where Cisco went from being a good company to a great company again.

Cisco Earnings Outlook

Cisco ,  CSCOJust as a refresher, the networking giant has been on something of a roll, earnings-wise. It has posted more than three straight years of quarterly earnings “beats”, with fiscal Q2’s net income growing a hefty 68% on a year-over-year basis.

Granted, revenue growth has been a bit lackluster for CSCO. On the flipside, it’s tough for a company doing $48 billion worth of business in a saturated market to achieve significant growth.

The fiscal Q3 outlook underscores this anemic growth trend. Analysts are expecting a top line of $12.1 billion, up 4.5% from the year-ago revenue figure of $11.5 billion. Income per share of Cisco stock is projected to roll in at 53 cents, versus the profit of 51 cents per share of CSCO the company booked in the third fiscal quarter of 2014.

3 Things for CSCO Owners to Mull

While any company the size of CSCO is pushed and pulled from many angles, there are three themes driving the value of Cisco stock more than any other factors right now. Whether or not these matters are discussed during the conference call or as part of the media’s post-earnings discussion, current or potential shareholders will want to keep their fingers on the pulse of these three items.

1. New CEO: While the investing public has occasionally been tough on current CEO John Chambers over the past couple of decades due to what at times seemed like unusually tepid growth, there’s no denying he’s the guy that put Cisco on the map during the ’90s. The CEO-elect has big shoes to fill, but the current consensus seems to be that CEO-elect Chuck Robbins could be the guy to take the company to the next level.

2. Internet of Things: Make no mistake — IoT is a big opportunity, even if it’s not perfectly clear what the Internet of Things will end up being once it’s mature. Chambers once estimated the IoT will generate/facilitate $14 trillion worth of annual revenue once the premise becomes a common, household idea. The fact that Cisco recently acquired a cloud-based collaboration software company called Tropo serves as another step toward dominating the Internet of Things market. Tropo will allow for easy development of device-communication services, which are critical in making IoT a seamless network.

3. Stock buyback: If you thought the buyback of Cisco stock at a pace of $1 billion per quarter was impressive, just wait. Some observers are thinking the buyback pace could pick up to as much as $3 billion per quarter under new CEO Chuck Robbins. That’s on top of the cash it’s dishing out as dividends. CSCO currently boasts an impressive dividend yield of 2.9% … and that’s after a big year-long rally.

Bottom Line for Cisco Stock

Though Cisco continues to dive deeper into arenas other than routers, switches, and networking hardware, for the time being, those products are still its bread-and-butter business. It needs to do well on that front if the upcoming Cisco earnings report is to be deemed a success.

To that end, though competitors like Ruckus Wireless Inc. (NYSE:RKUS) missed estimates and Juniper Networks, Inc. (NYSE:JNPR) posted a significant dip in year-over-year revenue, it should be noted that CSCO logged big (double-digit, in some cases) growth in its switching, data center and router businesses in second fiscal quarter of the year. That fact bodes well for another round of success on those fronts when the company reports on Wednesday.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/csco-owners-need-know-wednesdays-earnings-report/.

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