Next week, economic data rises to the fore as key reports from
around the globe come into focus. Domestically, industrial
production, retail sales data, and the Reuters/University of
Michigan Consumer Sentiment Survey will be in focus.
In the coming week, the earnings calendar slows down as earnings
season wanes. However, key reports from Cisco (NASDAQ:
), Agilent Technologies (NYSE:
), and Brocade Communications (NASDAQ:
) will be of note.
Cisco is expected to report fiscal fourth quarter results on
Wednesday. The company is expected to report fourth quarter EPS of
$0.51 vs. $0.47 a year ago on revenue of $12.4 billion vs. $11.69
billion a year ago.
The analyst team at Bank of America weighed in on buy-rated
Cisco ahead of earnings. BofA has a price objective of $30.00 on
"We expect 4Q sales to come at or slightly above the high end of
guidance of $12.2-12.5bl, with margin leverage driving slight
upside to our/Street EPS forecast of $0.51. At a high level, we
expect to see slow and gradual recovery in N. American orders,
stability in Europe and cyclical recovery in Government. On a
product basis, areas of upside will likely include switching,
wireless, and data centers."
"We believe the mid-point of guidance will come around $12.45bl,
which is in line with consensus. While conservative, we expect the
tone of the call to be positive on spending trends as spending
pressure in some verticals (Fed, Financials) and regions (Europe,
select emerging markets) has likely shown signs of easing. We
believe the switching business is most levered to a recovery in
spending, especially given the segment's flattish performance in
FY13, a 10Gb upgrade cycle in data centers and a fully refreshed
and highly competitive portfolio."
"Cisco's shares have rallied substantially off 2012, on
relatively modest upward revisions to FY14E EPS mainly reflecting
investors renewed confidence in Cisco's execution and greater
optimism on the overall macro and business trends. Despite the
rally, the stock still screens inexpensive vs. the S&P500,
11.6x 2014 P/E vs. 13.6x, while offering comparable growth rate
(~6%), greater margins of 28% vs. 13%, higher free cash flow yield
at 9% vs. 5% and also greater dividend yield at 2.7% vs. S&P's
Meanwhile, Deutsche Bank raised their price target on Cisco to
$28 from $26 ahead of earnings. The bank maintained its buy rating
on the stock.
"We are calling for an in line to slightly positive Jul Q
(strength led by Switching, Wireless, Services; some Emerging
Markets weakness) and an in line to slightly positive Oct Q guide
versus consensus. Cisco is a Datacenter Switching, Wireless, Telco,
and Advanced Services led growth story in our view, with recent
acquisitions in Security, Software, and Services driving potential
for upside surprises in FY14+."
"Realistically, we believe that Cisco's Q4 is likely to be in
line to slightly positive versus consensus expectations, given our
channel checks noting stronger than anticipated sales into US
Enterprises, US Commercial, and the Telcos."
Meanwhile, J.P. Morgan is more cautious on neutral-rated Cisco
ahead of earnings. The bank has a $26.00 price target on the stock,
although they did raise it from underweight to neutral ahead of
"We believe that leading indicators now suggest that networking
spending at enterprises will continue on a positive trajectory
through the end of 2013. Federal spending may still hiccup around
debt ceiling debates late in the year but we believe that State and
Local spending trends will continue to be helped by a more stable
housing market. Our concerns for Cisco associated with SDN remain
but these are not enough on their own to justify an Underweight
rating in our opinion."
"We are forecasting FQ4'13 revenue of $12.4bn (Cons: $12.4bn),
gross margin of 62.2% and EPS of $0.51 (Cons: $0.51). For FQ1, our
estimate for revenue is $12.4bn, gross margin is 62.2% and EPS is
Agilent Technologies (NYSE:
) is expected to report third quarter results on Wednesday as well.
The company is expected to report third quarter EPS of $0.62 vs.
$0.79 a year ago on revenue of $1.64 billion vs. $1.72 billion a
Analysts at Goldman Sachs are slightly cautious ahead of
earnings following mixed results from others in the medical device
industry. The bank has a neutral rating and a $45 price target on
Goldman notes that upside risks include: (1) Strong EM growth,
(2) strong cyclical spending, (3) increased shareholder activism.
They also highlight a few downside risks: (1) Weaker cyclical
spending patterns, (2) slowing EM growth, (3) greater acquisition
Morgan Stanley also weighed in on outperform-rated Agilent ahead
of earnings. "Agilent's diagnostic portfolio includes the company's
cytogenetic array business, its LCMS product offering, plus the
Dako tissue diagnostics business - the new autostainer instrument
plus its growing line of FISH & IHC tests."
"Our diligence with lab directors around the time of the Dako
transaction reflected satisfaction amongst directors with their
current staining platforms (from Roche and Danaher), and given the
lifespan of a stainer, feedback suggested it would be quite
difficult for Dako to have much of an impact with a new stainer.
However, given the numerous differentiating features of Dako Omnis,
we are more optimistic towards this product's potential to gain
share. Menu remains a key factor towards adoption hence is an for
Brocade Communications is expected to report third quarter
results on Tuesday. The company is expected to report third quarter
EPS of $0.12 vs. $0.14 a year ago on revenue of $518.85 million vs.
Analysts at Bank of America weighed in ahead of earnings on
buy-rated Brocade. The bank has a price objective of $6.50 on the
"Management highlighted its desire to narrow its product focus
and we expect pruning/selling to occur in Ethernet where 30% of
sales are non-data center/core (not all of the 30% to be
eliminated). We expect more focus on data center TAM, which could
grow from $6bn to $14bn over next 5 years. We believe BRCD is
satisfied with its FC switch portfolio and management continues to
expect 2-5% CAGR for FC (might be aggressive) with steady margins,
even pointing to 10%+ growth in some emerging markets."
"We believe restructuring is currently progressing better than
expected - cost savings could exceed $100mn (annualized) and be
achieved earlier than the projected 2/1/2014. We estimate 60% of
the savings will come from head count reductions with the remainder
from product focus, support costs etc. Very little savings will
likely be reinvested, dropping to EPS and FCF, although some
revenue will be impacted due to eliminating/selling some product
"With increased FCF, we expect the company to become more
aggressive with shareholder returns, particularly with buybacks
($410mn remaining on authorization) and a dividend is also under
consideration. We do not expect any major acquisitions, at least
Meanwhile, ISI Group is also bullish on the stock. ISI upgraded
it to buy in June and raised the price target to $7.50.
"Recall at last year's Analyst Day in Sept-12, BRCD set guidance
of ~$1.4bil FCF cumulative FY13-15 (averaging ~$465mil/year).
Despite recent softness, we believe this target remains achievable
due to 1) aggressive cost reduction activities including sales
force re-alignment, 2) recent sales/margin momentum in Ethernet, 3)
stickiness of the Fibre Channel installed base, and 4) an improving
macro backdrop for IT spending."
"BRCD has historically been early to market intersecting new
technology trends (e.g., fabric solutions, SDN, 16-gig FC, etc.)
and we believe the company can stay relevant in a changing
technology landscape. If restructurings and new capital allocation
initiatives are successfully implemented, we believe BRCD's
longer-term pro forma EPS could approach ~$0.80 and would drive
material share price appreciation from current levels."
"After reflecting the new cost savings/buyback program in our
financial model, we are materially raising our pro forma CY14 EPS
estimate to $0.75 (from $0.60) which represents ~10% upside vs.
Key Economics Releases
Economic data will be in focus next week with key economic
releases due out around the globe. Focus in the U.S. will be on
industrial production, retail sales data, and the
Reuters/University of Michigan Consumer Sentiment Survey will be in
focus. Overseas, investors will watch the German ZEW Economic
Sentiment Index, the German GDP report, and the British retail
Earnings Expected From: Buckeye Technologies (NYSE:
), Gol Airlines (NYSE:
), Interoil (NYSE:
), and Sysco (NYSE:
). Economic Releases Expected: Japanese industrial production, the
weekly bill auctions, and the Treasury budget statement.
Earnings Expected From: Brocade Communications (NASDAQ:
), JDS Uniphase (NASDAQ:
), and Millennial Media (NYSE:
). Economic Releases Expected: German and British inflation
reports, the German ZEW Economic Sentiment Index, the U.S. retail
sales report, the weekly Redbook, business inventories, and a
speech from Fed President Dennis Lockhart.
Earnings Expected From: Agilent Technologies (NYSE:
), Cisco (NASDAQ:
), Deere and Co. (NYSE:
), Macy's (NYSE:
), NetApp (NASDAQ:
), and Silver Wheaton (NYSE:
). Economic Releases Expected: The eurozone, German and French
GDP reports, the French employment report, the British employment
report, MBA Purchase Applications, producer prices, and a speech
from Fed President James Bullard.
Earnings Expected From: Wal-Mart (NYSE:
). Economic Releases Expected: The British retail sales
report, CPI inflation, initial jobless claims, the Empire State
Manufacturing Index, TIC Flows, industrial production, the NAHB
Housing Market Index, the Philly Fed Survey, and the e-commerce
retail sales report.
Economic Releases Expected: Housing starts, productivity and
costs data, and the Reuters/University of Michigan Consumer
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