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Nov. 13, 2019, 7:28 a.m. EST

Cisco earnings: results from the network-gear maker may refresh fears of a tech-spending slowdown

Cisco’s first-quarter results could go a long way toward gauging IT demand among corporate customers

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By Jon Swartz

Cisco Systems Inc. is scheduled to report fiscal first-quarter earnings Wednesday.

A disappointing forecast in August, hinting at weakness in China and corporate tech-spending, knocked Cisco Systems Inc. shares down. The question when Cisco delivers its most recent quarterly update is whether that spending trend continues.

Cisco /zigman2/quotes/209509471/composite CSCO +1.64%   is seen as one of the biggest barometers of tech spending globally, due to its dominance of the networking sector and the fact that a slowdown in network purchases can presage problems in other tech sectors. Several analysts think Cisco will say that tech spending is in trouble when it reports fiscal first-quarter results on Wednesday.

However, many strategists think the San Jose, Calif.-based networking company is in better shape than its rivals.

“We think expectations are fairly muted for Cisco given softer commentary by a host of peers regarding trends on IT spend, especially when it comes to large enterprises and service providers,” Evercore ISI analyst Amit Daryanani warned in a note Nov. 8. Nonetheless, he maintained an outperform rating and price target of $60 on Cisco shares, 23% above its closing price on Friday.

/zigman2/quotes/209509471/composite CSCO 46.38, +0.75, +1.64%

Daryanani was referring to Juniper Networks Inc.’s /zigman2/quotes/207361368/composite JNPR +2.52%  third-quarter financial report last month, in which Chief Executive Rami Rahim acknowledged “service provider spending remains challenged.” The Juniper boss also said his company “experienced weaker than expected enterprise orders in the September quarter.”

Executives at International Business Machines Corp. /zigman2/quotes/203856914/composite IBM +0.39% made similar comments from.

“What I’ve seen play out in third quarter, while we’ve got a headwind right in front of us on [global technology services] in fourth quarter, nothing would change my mind with regards to 2020 on driving sustainable revenue growth overall,” IBM Chief Financial Officer Jim Kavanaugh said on an analyst call last month.

The global economic challenges facing Cisco are likely to prompt cost-cutting and extend its “business pivot toward software and recurring revenue” to its partners, Raymond James analyst Simon Leopold said in a Nov. 7 note that reiterates an outperform rating and price target of $59. (Cisco cut about 500 Silicon Valley jobs, according to documents filed with the state of California in August.)

Expectations are for flat sales and comparable earnings.

Not all the prognostications are so dour, however.

In its summary of hardware and communications equipment companies, Barclays believes Cisco and Hewlett Packard Enterprise Co. /zigman2/quotes/201998588/composite HPE +1.91%  are best positioned to take advantage of recent momentum in spending on computer networking.

“Our checks suggest that tough conditions have persisted but have not worsened,” Oppenheimer analyst John Stoltzfus added in a Nov. 4 note. “We see signs of resiliency in WLAN, security, and campus switching spending and believe Cisco has appropriately reset the bar to a level where it can deliver in-line results and offer in-line guidance.”

What to expect

Earnings: Analysts polled by FactSet on average expect Cisco to report adjusted earnings of 81 cents a share, after Cisco projected 81 cents to 83 cents a share. Contributors to Estimize — a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others — on average expect adjusted earnings of 83 cents a share. In the same quarter a year ago, Cisco reported adjusted earnings of 75 cents a share, with GAAP earnings of 77 cents a share.

Revenue: Analysts on average project that Cisco will report $13.08 billion in revenue, according to FactSet, the bottom of its guidance range. Estimize contributors expect $13.15 billion on average. In the fiscal first quarter a year ago, Cisco reported $13.07 billion in sales.

Stock movement: Cisco stock suffered its worst post-earnings performance in more than five years after its fiscal fourth-quarter earnings report in August, breaking a streak of four straight gains following earnings. Shares are still up 11.5% this year, as the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.42%  has gained 23.4% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.54%  — which counts Cisco as a component — has increased 18.7%.

Analysts are generally bullish on Cisco, with FactSet tracking 15 analysts calling the stock the equivalent of a buy and 12 rating it a hold, with none recommending selling shares. The average price target is $48.31, representing a premium of more than 13% to the going rate.

US : U.S.: Nasdaq
$ 46.38
+0.75 +1.64%
Volume: 8.10M
July 6, 2020 2:00p
P/E Ratio
Dividend Yield
Market Cap
$192.66 billion
Rev. per Employee
$ 23.11
+0.57 +2.52%
Volume: 1.05M
July 6, 2020 2:00p
P/E Ratio
Dividend Yield
Market Cap
$7.47 billion
Rev. per Employee
$ 120.17
+0.47 +0.39%
Volume: 1.96M
July 6, 2020 2:00p
P/E Ratio
Dividend Yield
Market Cap
$106.28 billion
Rev. per Employee
$ 9.59
+0.18 +1.91%
Volume: 3.21M
July 6, 2020 2:00p
P/E Ratio
Dividend Yield
Market Cap
$12.09 billion
Rev. per Employee
+44.31 +1.42%
Volume: 1.37B
July 6, 2020 2:00p
US : Dow Jones Global
+397.43 +1.54%
Volume: 197.70M
July 6, 2020 2:00p

Jon Swartz is a senior reporter for MarketWatch in San Francisco, covering many of the biggest players in tech, including Netflix, Facebook and Google. Jon has covered technology for more than 20 years, and previously worked for Barron's and USA Today. Follow him on Twitter @jswartz.

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