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Can Cisco Systems (CSCO) Pull a Surprise in Q1 Earnings?

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Cisco Systems (CSCO - Free Report) is set to report first-quarter fiscal 2017 results on Nov 16. Last quarter, the company reported a positive earnings surprise of 5.45%. We note that the company has beaten the Zacks Consensus Estimate in all of the last four trailing quarters, with an average positive surprise of 7.95%.

Let’s see how things are shaping up for this announcement.

CISCO SYSTEMS Price and EPS Surprise

CISCO SYSTEMS Price and EPS Surprise | CISCO SYSTEMS Quote

Factors to Consider

Cisco’s strategy of diversifying its business by introducing software-based networking tools and security services, and relying less on specialized routers and switching equipment appears to be yielding results.

Moreover, partnerships with the likes of salesforce.com (CRM - Free Report) and Pure Storage (PSTG - Free Report) is positive for the company's top-line growth. The recent acquisition of CloudLock will help it to broaden its efforts and meet the changing compliance as well as security needs.

For the first quarter of fiscal 2017, Cisco anticipates revenues to grow in the range of -1% to 1% on a year-over-year basis. This guidance excludes the contribution from the SP Video CPE Business.

On a non-GAAP basis, gross margin is expected within 63–64% of revenues and operating margin is projected in the range of 29–30% of revenues. The company anticipates a non-GAAP tax rate of 22%, yielding non-GAAP earnings of 58–60 cents per share.

However, the increasing competition and challenges in China remain concerns.

Earnings Whispers

Our proven model does not conclusively show that Cisco will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: The, Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 54 cents.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cisco has a Zacks Rank #2, which when combined with a 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here is a stock that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Best Buy (BBY - Free Report) , with an Earnings ESP of +4.26% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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