Q3 Preview: Slumping Cisco (CSCO) May Have One More Trick as 4G, Mobile Video Set to Expand


Cisco (Nasdaq: CSCO) is trading lower Wednesday ahead of the company's third-quarter earnings release, slated for after the market close. Shares are down 0.3 percent to $17.74 at last check.

Cisco is expected to report EPS of $0.37 on revs of $10.86 billion. Last quarter, the San Jose, CA-based tech giant reported EPS of $0.37 on revs of $10.4 billion. Looking back at the third quarter of last year, Cisco produced EPS of $0.42, ex-items, on revs of $10.4 billion.

Shares fell about 18 percent through the quarter and are up 1.8 percent since.

Cisco stock is trading at a P/E of 10.2x FY12 EPS estimates, compared with 20.3x at Juniper Networks, Inc. (Nasdaq: JNPR) and 12.9x for Alcatel-Lucent ( ALU ).

Data from Bloomberg has 24 analysts with a Buy on Cisco, 21 with a Hold, and two suggesting to Sell. The analyst price target average is $23, with a high of $29 and low of $17.50. Shares have traded in a range of $26.8 - $16.52 over the last 52-weeks.

Analyst Summary
  • Goldman Sachs sees EPS of $0.36 and revs of $10.817 billion. Goldman is expecting in-line results, but guidance at the low end of analyst expectations. "Our relatively cautious view is driven by weaker than expected revenues for the enterprise switching industry in CQ111, driven not only by the maturation of the category and the deflationary impacts of cloud computing, but also by difficult comps given the industry's 30% growth in CY10." Goldman's last survey has respondents planning spending on Cisco products at muted levels, below the 50 - 70 percent that was expected. Further, Goldman is looking for gross margins to decline more moderately than expected from the market, coming in at 62 percent.

  • Wells Fargo is looking for EPS of $0.38 and sales of $10.82 billion. Wells is modeling a gross margin of 62.5 percent and operating margin of 24 percent. "with strong end-market exposure, significant competitive advantage, and trough valuation we view current levels asan attractive entry point for long-term value-oriented investors."

  • Wedbush expects EPS of $0.37 and revs of $10.881 billion. Checks have Wedbush believing results will be in-line. "We believe demand in the quarter was lackluster, given weakness in switching and routing solutions in EMEA (20% of sales), public sector (22% of sales), and select sub segments within service provider (32% of sales)."

    In terms of building shareholder value moving forward, Wedbush comments: "we would like to see a wholesale exit from the consumer business given its lower margin profile and negative returns associated with driving brand awareness. With a new generation of the population who see wireline television as a legacy technology, chasing the price-sensitive SMB market needs to be re-evaluated. In addition, we think the company needs to resist the idea of looking at the TAM of stand-alone L4-7 products and reallocate resources to this segment as the new delivery model will require superior technology which Cisco arguably lacks. Furthermore, we believe the company may need to reallocate its mix of service provider customers to content providers and mobile operators and away from cable operators whose businesses are becoming less viable, in our view."

  • Deutsche Bank sees EPS of $0.37 amd revs of $10.9 billion. "Near-term, our checks indicate the company is benefiting from better than normal seasonal spending patterns in major verticals such as technology, financial services, automotive, retail and the large telcos and Web 2.0 / Cloud providers...Revenue is likely to be better than feared as well, driven by growth from the routing, datacenter, and video/collaboration product cycle ramps in Cisco's large enterprise and Tier-1 carrier customer base, especially in the US and in the emerging markets."

  • BGC sees EPS of $0.40 and revs of $10.9 billion.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: ALU , CSCO



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