Will Cisco Systems (CSCO) Disappoint this Earnings Season? - Analyst Blog


Cisco Systems ( CSCO ) is set to report third-quarter fiscal 2014 results on May 14. Last quarter, the company posted a 2.4% positive surprise. Let's see how things are shaping up for this announcement.

Growth Factors this Past Quarter

The company's second-quarter earnings exceeded the Zacks Consensus Estimate by a penny driven by solid expense control. Revenues of $11.2 billion decreased 7.8% year over year and 7.4% sequentially.

Also, the second quarter was weak for Cisco in terms of margin growth. This was mainly due to unfavorable product mix and lower volumes.

For the third quarter, Cisco expects revenues to decrease in the range of 6% to 8% on a year-over-year basis. The company expects non-GAAP gross margin within 61-62%; non-GAAP tax rate of 21%, yielding non-GAAP earnings per share of 47 to 49 cents.

Earnings Whispers?

Our proven model does not conclusively show that Cisco Systems will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 43 cents. Hence, the difference is 0.00%.

Zacks Rank: Ciscohas a Zacks Rank #3 (Hold) which, when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks with a positive Earnings ESP and a Zacks Rank #1, 2 or 3 such as:

Sanderson Farms, Inc. ( SAFM ), with Earnings ESP of +3.75% and a Zacks Rank #1 (Strong Buy).

Encana Corporation ( ECA ), with Earnings ESP of +9.43% and a Zacks Rank #1.

RSP Permian, Inc. ( RSPP ), with Earnings ESP of +11.11% and a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

ENCANA CORP (ECA): Free Stock Analysis Report

RSP PERMIAN INC (RSPP): Free Stock Analysis Report

SANDERSON FARMS (SAFM): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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 , Business , Earnings , Stocks

Referenced Stocks: CSCO , ECA , RSPP , SAFM



More from Zacks.com:

Related Videos

Vox Media Acquires Re/Code
Vox Media Acquires Re/Code          



Most Active by Volume

  • $16.74 ▲ 1.45%
  • $45.93 ▼ 24.20%
  • $57.155 ▲ 21.81%
  • $132.045 ▲ 1.87%
  • $5.28 ▲ 7.32%
  • $67.38 ▲ 1.94%
  • $34.95 ▲ 0.81%
  • $8.60 ▲ 1.06%
As of 5/27/2015, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com