Cisco: Ahead of Earnings, More Estimates Cut

Numbers continue to ratchet down for Cisco Systems (CSCO) ahead of the company’s earnings report after the close on Wednesday Nov. 5. In particular, the Street is convinced that Cisco is due to slash revenue expectations for the January quarter to well below the company’s previously forecast level.

Credit Suisse networking analyst Paul Silverstein this morning chopped his EPS estimate for the July 2009 fiscal year to $1.35 from $1.67, while slashing his FY 2010 projection to $1.47 from $1.90. Silverstein trimmed his price target for the stock to $19, from $25. Silverstein writes that he remains “concerned regarding the challenging carrier capex environment and the deterioration in the global macro environment.”

Silverstein is one of several analysts this morning who noted that Cisco is likely to ratchet down its expectations for the January quarter. Cisco had previously projected growth for the quarter of 7.5% to 9.5%, but Silverstein thinks that is now too high, given “the significant expansion of the decline in the macro environment from specific industry verticals to virtually all sector of the economy and from the U.S. to virtually all regions of the globe.”

Silverstein’s asserts that near-term risks in Cisco shares outweigh potential rewards, and that investors haven’t fully discounted the reduced outlook he thinks Cisco will provide.

Meanwhile, Bernstein Research analyst Jeff Evenson today trimmed his FY ‘09 EPS estimate to $1.56, from $1.69, while cutting FY 2010 to $1.67, from $2. He predicts Cisco will lower its January quarter revenue growth forecast down to 4.9%. Evenson also thinks the company is going to see operating margins come under pressure as revenues fall but investment in the business continues: he sees operating margins dropping to 27.5% in each of the next two years, down from 29.5% in FY 2008.

UBS analyst Nikos Theodosopoulos noted today that the company has begun to moderate hiring and is reducing staff in certain areas. He’s now expecting the forecast for the January quarter to drop down to 3%-5% growth, which at the low end would be down 1% sequentially. His estimates are for $1.43 this year, and $1.55 next year. He remains Neutral on the stock.

Goldman Sachs analyst Simona Jankowski today repeated her Buy rating on the stock, but nonetheless cautioned that January quarter guidance is likely to be reduced: she thinks the number will be cut to 3%.

CSCO today is down 63 cents, or 3.6%, to $17.14.

Comments

[Octogenarian:]

That explains yesterday's lag but not today's 5% jump in csco's share price.

2008 Nov 04 10:51 AM