Cisco Systems Earnings Preview: Fiscal Third Quarter 2009

Cisco Systems [[CSCO]] is scheduled to report their fiscal third quarter 2009 results after the market closes on Wednesday, May 6. Based on our analysis, we at are expecting CSCO to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $91.1 billion and EPS of $.06. This would represent a 12% increase in revenues from last year’s $9.79 billion in the same period. The current analyst consensus estimates calls for revenues of $8.07 billion and EPS of $.25.


Last quarter, Cisco reported there first annual sales decline in several years. We would expect that trend to continue this quarter as customers look to reduce their cap ex spending in the face of a global recession. However, Intel [[INTC]] and IBM [[IBM]] both have already posted better than expected earnings which we feel bodes well for Cisco. The network equipment vendor has a strong track record of exceeding Wall Street’s consensus estimates and we feel that they should be able to do so again this quarter.


It’s also important to note that Cisco has $29.5 billion in cash & investments on its balance sheet, while carrying minimal debt. Last quarter, despite the challenging economic environment, the company was able to generate $3.2 billion in cash flows. This strong liquidity should enable the company to capitalize on growth opportunities despite the credit crisis that may limit lesser companies.


Share Performance

Since the beginning of the year, Cisco’s shares are up over 14%. In 2008, Cisco’s shares fell 40% as the stock underperformed the 34% decline in the Dow Jones index.



Shares are now trading at 16x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. We would expect to see Cisco’s stock price appreciate following better than expected quarterly earnings results and see plenty of long-term potential in holding this stock.


Recommendation: Buy with a $22 price target.


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