Cisco Systems Earnings Preview: Fiscal Fourth Quarter 2009

Cisco Systems [[CSCO]] is scheduled to report their fiscal fourth quarter 2009 results after the market closes on Wednesday, August 5. Based on our analysis, we at EarningsPreviews.com are expecting P&G to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $8.55 billion and EPS of $.30. This would represent a 17% decline in revenues from last year’s $10.36 billion in the same period. The current analyst consensus estimates calls for revenues of $8.51 billion and EPS of $.28.

 

Last quarter, Cisco Systems managed to once again report better than expected earnings results despite a 17% decline in sales. More importantly, they commented about the stabilization they were starting to see in the market place. We expect that that stabilization gave way to actual improvement this quarter as customers begin to invest once again as they see some of the early signs of an economic recovery. The positive earnings performances of both Intel [[INTC]] and IBM [[IBM]] are also a positive indicator for Cisco.

 

Looking ahead to fiscal 2010, we feel that Wall Street’s earnings estimates are too conservative. Wall Street analysts expect Cisco’s earnings to fall 4% next year, but we anticipate single-digit growth in earnings as the economic environment improves over the next four quarters. The improving economic climate as well as the company’s $33.6 billion in cash should allow Cisco to capitalize on future growth opportunities.

 

Share Performance

Since the beginning of the year, Cisco System’s shares have gained nearly 36%. In 2008, Cisco’s shares fell almost 40%, and underperformed even the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 17x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. We believe that Cisco’s strong market position and large war chest deserves a premium valuation. With the economic outlook improving, we would expect Cisco’s shares to continue to rise over the next 12 months.

 

Recommendation: Buy with a $25 price target.

 

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