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Why Cisco Systems (CSCO) Is Gaining Ahead of Earnings

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Stocks opened higher on Monday morning as global investors looked to quickly rebound from the market’s worst week in two years. One of the morning’s notable gainers was Cisco Systems (CSCO - Free Report) , which surged more than 3% in early trading hours, just two days before the tech conglomerate is set to release its latest quarterly earnings results.

Cisco is a global leader in information technology. The company is best known for its networking hardware and telecommunications equipment. Cisco also works to empower budding tech markets such as Internet of Things, security, and energy management. With a market cap of over $180 billion, Cisco is one of the largest IT firms in the world—meaning that its earnings report could be a major market mover.

Shares of the technology powerhouse gained on Monday morning thanks to a brand-new analyst report that suggested Cisco is poised for a major surge on the back of an upcoming hardware upgrade cycle.

“We believe Cisco's webscale switching wins are durable and its window for a campus switching refresh will extend through 2019,” wrote Nomura Instinet’s Jeffrey Kvaal in a note to clients. “Now is the time for networking juggernaut Cisco.”

Nomura upgraded Cisco shares to a “buy” rating from “neutral” and raised its price target for the stock to $46 from $33. That call would represent a 16% upside to Friday’s closing price.

Cisco is scheduled to release its fiscal second quarter earnings report on Wednesday. Based on our current consensus estimates, we expect the company to post adjusted profits of $0.59 per share and total revenues of $11.82 billion. These results would represent year-over-year growth rates of 3.51% and 2.05%, respectively.

But Nomura thinks that the real opportunity for Cisco lies further ahead. The firm estimates that Cisco will generate full-year earnings of $2.58 per share in fiscal 2018, which is noticeably higher than our consensus estimate of $2.47 per share.

“Cisco appears well-positioned to gain share from Extreme, Juniper, and Avaya which have generally been weak in campus,” Kvaal continued.

The analyst said that Cisco increased its share of the ethernet switch market to 53% from 49% in the third quarter of fiscal 2017. Kvaal thinks those gains will continue into fiscal 2019. Investors looking to spot any hints of this trend should make sure to pay close attention to Cisco’s latest results on Wednesday.

Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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