Cisco Systems Earnings Preview

Cisco Systems [[CSCO]] is scheduled to report their fiscal second quarter 2010 results after the market closes on Wednesday, February 3rd. Based on analysis from, Cisco is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $9.43 billion and EPS of $.37. This would represent a 4% increase in revenues from last year’s $9.09 billion in the same period. The current analyst consensus estimates calls for revenues of $9.40 billion and EPS of $.35.


Earnings Analysis

Cisco Systems is expected to report their third consecutive quarter of sequential revenue growth driven by a recovery in corporate IT spending. Notably, headline growth will show positive year/year gains for the first time since 2008. Strong results from Intel [[INTC]] and IBM [[IBM]] demonstrate that enterprise IT spending is already in recovery mode. We would expect increased optimism from Cisco as we enter calendar year 2010.


Last quarter, CEO John Chambers noted that Cisco faces “the most profound opportunity for businesses in our 25 years as a company.”  Likewise, investors should be excited about Cisco’s opportunity to capitalize on pent-up demand for technology upgrades within corporations around the world. Look for double-digit revenue growth to return in fiscal 2011.


Stock Performance

In 2009, Cisco stock gained 47% as the new Dow component outperformed the Dow Jones industrial average’s 19% increase. Since the beginning of the year, Cisco’s shares have fallen over 5%.



Cisco Systems is now trading at 14x consensus 2011 EPS estimates. This is a premium to the relative valuations of their peer group. Given the improving business environment, we expect that Wall Street will be increasing their earnings estimates for Cisco which should lift their stock price.


Recommendation: Buy with an $25 price target


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