Cisco Systems Inc. heads into its fourth-quarter earnings report Wednesday facing concerns about its exposure to the U.S.-China trade impasse and a revenue-guidance warning from NetApp Inc. last week.
Investors have driven shares of the networking giant down 13% in the past month amid fears that tussling with China will weigh on tech spending, with NetApp as a prime example. Analysts, though, remain upbeat about Cisco’s CSCO, -1.70% prospects, largely because it has diversified its product and services portfolio under CEO Chuck Robbins.
“We see Cisco as remaining one of the more defensible stories within our IT infrastructure coverage,” Wells Fargo Securities’ Aaron Rakers said in an Aug. 9 note, highlighting Cisco’s expanding software and subscription revenue, sales of switches and WiFi upgrades, and growth of enterprise licensing agreements.
“We are expecting positive results from Cisco this quarter given our industry discussions, and believe the stock pullback given the macro-concerns is healthy” heading into the quarter, Piper Jaffray’s James Fish said in an Aug. 7 note that maintained an overweight rating on Cisco shares with a price target of $58.
Read more: Chuck Robbins decided to ‘change everything’ at Cisco, and it’s working
Both analysts, as well as UBS’s John Roy, consider Cisco immune to the softening of enterprise IT spending that is dogging data-storage provider NetApp NTAP, -1.01%. Roy’s $61 price target implies an 18% upside to Cisco’s closing price of $51.54 on Monday.
J.P. Morgan’s Samik Chatterjee pointed to strong earnings from Juniper Networks Inc. JNPR, -0.95% and Arista Networks Inc. ANET, -1.86% as proof that Cisco is in relatively good shape, though Arista forecast weaker-than-expected growth last week.
Whispers of summer layoffs, which created prominent, headline-grabbing distractions in Cisco earnings for several years, were silenced last year when the company did not announce a workforce reduction. Robbins has instituted restructuring changes across the fiscal year, as Cisco continues to acquire companies and consolidate their operations.
Read more: Cisco stock gets after-hours boost as earnings and outlook top estimates
That is one of several major changes under Robbins since he took over Cisco four years ago from Silicon Valley legend John Chambers. Since then, he has reshaped the 35-year-old company from one built almost entirely on selling hardware for networking to one focused on hybrid cloud and recurring software subscriptions.
Earnings: Of the 25 analysts surveyed by FactSet, Cisco on average is expected to post net income of 81 cents a share, the same amount projected by analysts at the end of April. In the fourth quarter a year ago, Cisco reported net income of 70 cents a share. Estimize, which crowdsources estimates from buy- and sell-side analysts, fund managers, academics and others, is forecasting 82 cents a share.
Revenue: Wall Street expects revenue of $13.4 billion from Cisco, according to 22 analysts polled by FactSet, which would mean annual sales of $51.8 million. Cisco reported revenue of $12.8 billion during last year’s fourth quarter. Estimize contributors are forecasting fourth-quarter revenue of $13.4 billion on average, based on 97 estimates.
Stock movement: Cisco shares are up 19% this year, compared with a gain of 15% for the S&P 500 index SPX, -1.22% . Of the 27 analysts who cover Cisco, 17 have buy or overweight ratings, and 10 have hold ratings, with an average price target of $58.68, according to FactSet data.
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