Cisco System (NASDAQ: CSCO) is scheduled to announce earnings results on Wednesday, February 16th, after market close. The consensus EPS estimate is $0.81 (+2.5% Y/Y) and the consensus Revenue Estimate is $12.66B (+5.5% Y/Y). Revenue is seen growing between 4.5% to 6.5% Y/Y; non-GAAP EPS is seen between $0.80 to $0.82. Analysts’ consensus estimates for revenue growth are seen at 5.8% while EPS is seen at $0.81.
Zacks cites Increasing investments on portfolio expansion, product enhancements, and acquisitions amid stiff competition in the networking infrastructure market are expected to have dragged down margin expansion in Q2; the company expects to report non-GAAP gross margin in the range of 63.5-64.5% and non-GAAP operating margin rate between 32.5% – 33.5%.
Expect intense focus from investors not only on the level of demand but also on the networking company’s ability to produce enough hardware to fulfill customer orders.
When Cisco reported earnings in November, the company said it expected revenue growth between 4.5% and 6.5% for the fiscal second quarter ended in January, which implies $12.6 billion at the midpoint of the range. That forecast was $300 million below previous Wall Street estimates, a shortfall Cisco blamed on continued supply-chain issues. The street Cisco sees earnings for the quarter between 80 and 82 cents a share on a non-GAAP basis; Street consensus is 82 cents.
On a conference call with investors in November, Cisco CEO Chuck Robbins said the company was seeing the strongest demand in over a decade, but that supply constraints limited what it could build and ship to customers, while also putting pressure on margins. For the January quarter, the company projected a non-GAAP gross margin between 63.5% and 64.5%, compared with 64.5% in the October quarter.
In a research note previewing the quarter, Morgan Stanley analyst Meta Marshall wrote that there is little question heading into the quarter that there is plenty of networking demand. Marshall, who maintains her Equal Weight rating and $61 target on the stock, writes that her channel checks suggest Cisco should report an in-line quarter, but she is cautious on guidance.
“With stable to worsening supply chain conditions,” the question heading into the quarter is whether Cisco will be able to reach its full-year revenue target, she writes.
For the July 2022 fiscal year, Cisco sees revenue up 5% to 7%, consistent with the Street consensus forecast for 5.8% growth. The company sees full-year non-GAAP earnings between $3.38 and $3.45 a share; Street consensus is $3.42 a share.
Street consensus calls for April quarter revenue of $13.3 billion, with non-GAAP earnings of 86 cents a share.
Evercore ISI analyst Amit Daryanani writes in a research note that his checks suggest Cisco can deliver “modest upside” in the January quarter “against low expectations.” However, like Marshall, he says the focus will be on guidance, both for the April quarter and the full year. “While demand vectors look good …the risk is supply chain dynamics that have likely stayed the same if not gotten slightly worse over the last 90 days,” he writes. Daryanani keeps his Outperform rating and $67 target on Cisco shares.
Cisco last quarter implemented a new segment reporting structure. The largest of those is “Secure, Agile Networks,” which includes campus, data center, and enterprise routing, compute, and switching; Street consensus for the quarter is for revenue of $5.8 billion for the segment.
For “Hybrid Work,” which includes collaboration and data center products, consensus calls for revenue of $1.1 million. For the “Internet for the Future” segment, which includes optical networking and 5G products, the Street expects revenue of $1.3 billion. For the company’s “End to End Security” segment, consensus calls for revenue of $859 million. For “Optimized Application Experiences,” which includes observability and cloud software, the consensus is $183 million. the consensus now calls for $12.65 billion.
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