Cisco (CSCO) is scheduled to report results of its fiscal third quarter after the market closes on May 17 with a conference call scheduled for 4:30 pm ET. What to watch for:
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ORDER NUMBERS TO REMAIN IN FOCUS: In a research note ahead of earnings, Evercore ISI noted that Cisco shares enjoyed a decent run after their January-quarter earnings report, but they have since given back all the gains and then some. The underperformance is likely driven by investors focusing more on order trends than revenue growth. In addition, there is some concern around Cisco’s recently announced financing programs, which is being perceived as a lever to shore up order trajectory in July-quarter, the firm adds. Enterprise networking earnings for the March-quarter were generally better-than-expected, but declining order growth has resulted in most networking shares trading down post-earnings. Evercore thinks Cisco will likely continue the trend of reporting strong revenue growth, but suspects Cisco’s order declines are likely to remain in the low 20% range given compares get much easier in April versus January.
Fundamentally, the firm believes investors remain “overly and unduly” focused on order declines given these kinds of declines were always going to happen as the supply environment improved. Positively, the firm suspects Cisco should be able to provide visibility on their ability to not just grow revenues in FY24 but a faster than expected gross margin recovery or an acceleration in buybacks could serve as an upside catalyst prior to an improvement in order growth. There is a fair bit of investor concern around true demand levels for enterprise networking and whether one could see a downturn in 2024 as backlog declines. Evercore thinks the bogey is 30% order declines and it’s likely Cisco will be better than that. The firm maintains an Outperform rating on the shares with a price target of $60.
ON THE SIDELINES: Back in March, Goldman Sachs initiated coverage of Cisco with a Neutral rating. The firm said it prefers networking equipment stocks that should benefit from cloud service provider data center investments, enterprise digital transformation spending, earnings visibility, and attractive valuation relative to peers.
OUTLOOK: During the last earnings conference, Cisco said it saw Q3 adjusted EPS of 96c-98c and revenue growth of 11%-13% year-over-year, with consensus at $97c and $14.39B, respectively. The company also raised its full year 2023 adjusted EPS view to $3.73-$3.78 from $3.51-$3.58, with consensus at $3.75, and raised its full year 2023 revenue growth view to 9%-10.5% from 4.5%-6.5%, with consensus at $56.55B.
Published first on TheFly
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