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Cisco Systems (CSCO) is scheduled to release its third-quarter 2013 earnings on Wednesday, May 15. Below I have provided an update of the quarter as well as an overview of earnings expectations.

Profile and Estimates

Cisco has a market cap of $111.06 billion and currently trades for $20.83 per share. Shares are up 6.88% YTD and trade 42.47% above their 52-week low of $14.62. Analysts have a mean target price of $23.53 and a median price target of $24.00 on the shares. Thirty six analysts have an average first-quarter earnings per share estimate of $0.49 on estimated revenues of $12.19 billion. Cisco Systems has beat earnings expectations in each of the previous four quarters.

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Last Quarter

  • Net sales increased 5% year over year to $12.1 billion, this was the record revenue for the 8th quarter in a row.
  • GAAP EPS of $0.59, non-GAAP EPS of $0.51.
  • Cash returned to investors in the form of common stock repurchases and dividends was approximately $1.2 billion.

Fundamentals and Highlights (Sources cited below article)

Positives

  • Dividend yield of 2.56%
  • P/E of 11.9 and P/B of 2.0 are both below the industry averages 70.9 and 2.3 respectively.
  • Operating margin of 22.4% and net margin of 19.7%.
  • ROA of 10.0 and ROE of 17.8 are both above the industry averages 5.5 and 10.1 respectively.
  • Enterprise value/EBITDA of 6.06 is lower than both competitors Oracle (ORCL) and Juniper (JNPR), 8.31 and 10.11 respectively.
  • Higher internet usage will continue to drive demand for products.
  • Free cash flow has consistently come in at close to 10% of the company's market value.

Negatives/Challenges

  • Net income growth has averaged only 9.4% over the past three years compared with the industry's average 48.2%.
  • P/S of 2.4 is above the industry average 1.7.
  • Switches and routers bring in close to 2/3 of Cisco's product sales, increased competition from competitors like Juniper and Brocade (BRCD) could slowly pressure margins and revenues
  • Lots of options for growth; will it pick the right path?

Take Away

Shares look cheaply valued compared with most businesses in the same space and the balance sheet is strong. Right now, its unclear as to which company stands to benefit the most from higher demand for data but it's safe to say Cisco is in the right place at the right time. Watch for earnings on Wednesday as Cisco looks to beat its quarterly revenue record for the ninth quarter in a row.

Sources

In addition to the links above, ratios and financial data was sourced from Morningstar.com, which you can find here.

Other company data sourced from the annual report that can be accessed here.

Source: Cisco Systems' Q3 Earnings Preview