By Brendan Gilmartin
Cisco Systems (CSCO) is slated to report 1Q 2012 earnings after the close of trading on Wednesday, November 9. The results are typically available at 4:05 p.m. EST and will follow with a conference call at 4:30 p.m.
Outliers And Strategy
- Cisco typically provides a value for Non-GAAP Earnings Per Share (EPS) that is comparable to consensus views. In the previous conference call, Cisco targeted Non-GAAP EPS is expected to range from $0.38 to $0.41 per share. The current consensus is $0.39 (Source: Yahoo Finance).
- Revenues are the next most important measure for Cisco. Cisco previously said it expects 1Q 2012 revenues to increase 1% to 4% year-over-year. Based on the 1Q 2011 revenue figure of $10.750 bln, the projected range would equate to $10.858 BLN to $11.180 BLN. The consensus is $11.020 bln.
- Sympathy Plays: Juniper Networks (JNPR), F5 Networks (FFIV). Recall, both names rallied after reporting disappointing results. Radvision (RVSN) derives 34% of its revenues from Cisco, while Cavium (CAVM) earns 22%, according to Revere Data.
- Cisco finished 2011 with a total of cash, cash equivalents and investments of $44.6 billion. Product backlog at the end of fiscal year 2011 was $4.3 billion.
- Cisco said it would be more opportunistic in its share repurchase program if overall markets conditions remain depressed.
- 11/01: MKM Partners initiated coverage on Cisco with a Buy rating and a $25 price target, based on valuation and a realistic outlook, according to a report on Barron’s Online. The firm believes Cisco is “on plan” to deliver for the current quarter.
- 10/27: UBS upgraded Cisco from Neutral to Buy and raised the price target to $19.75, according to Forbes.com, citing solid networking demand in the U.S.
- 09/20: Cisco announced it is collaborating with Microsoft (MSFT) to deliver data center virtualization solutions.
- 09/14: Stifel Nicolaus raised its price target on Cisco from $17 to $20, citing the conservative growth targets, according to a report on Benzinga.com. The firm also reiterated a Buy rating.
- 09/13: During its analyst meeting, Cisco CFO Frank Calderoni provided projections through 2014. The company sees revenue growth of 5% - 7% CAGR and EPS growth of 7% - 9% CAGR. The Street viewed this guidance as conservative and achievable.
Cisco shares have been breaking out over the past several weeks, climbing back above long-term resistance at $18 – a level going back to the spring of 2009. After holding support near $15 in early October, Cisco has since rallied more than 18% in advance of the 1Q 2012 earnings release. With sentiment tracking relatively high, it will require a strong report to push the shares toward the recent highs near $18.50, representing near-term resistance. Initial support is near the 20-Day SMA at $17.60, followed by the 200-Day SMA near $16.75. (Chart courtesy of StockCharts.com)
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Cisco shares recently broke out to the highest level since February, based on solid networking demand, share repurchase activity, conservative guidance, improved operational performance, recent cost-cutting efforts and valuation. At just 9.67x forward earnings, the shares are trading nearly in-line with the company’s projected growth rate of 7%-9%, discounting some of the growth in data center expansion, collaboration and services. Solid results from several of its peers also suggest Cisco may extend the recent advance.
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