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Cisco Systems Inc. (CSCO - Free Report) is set to release second-quarter fiscal 2018 earnings on Feb 14. The company beat the Zacks Consensus Estimate in three of the trailing four quarters with an average positive surprise of 1.73%.

In the last quarter, the company reported non-GAAP earnings of 61 cents per share, beating the Zacks Consensus Estimate by a penny. However, the figure remained unchanged on a year-over-year basis.

Cisco missed the Zacks Consensus Estimate for revenues in three of the trailing four quarters. Revenues declined 1.7% year over year in the first quarter to $12.14 billion and were almost in line with the Zacks Consensus Estimate. The decline was due to the transition to subscription-based model.

Guidance & Estimates

For second-quarter fiscal 2018, revenues are expected to increase in the range of 1-3% on a year-over-year basis. Non-GAAP earnings are anticipated between 58 and 60 cents per share. The Zacks Consensus Estimate for earnings is pegged at 58 cents, while that for revenues stands at $11.73 billion.

Gross margin is expected in the range of 62.5-63.5%, while operating margin is anticipated between 29.5% and 30.5% for the quarter.

Cisco’s stock has returned 26.9% in the last year, outperforming the 10.1% rally of the industry.

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

Collaborations to Drive Growth

Cisco’s extended partnerships with the likes of Apple, IBM and Microsoft are likely to boost growth, particularly in the cloud and IoT.

During the quarter, the company witnessed enhanced product adoption. The majority of the companies including the likes of Ameritas and Orange selected Cisco to improve IT security, and enhance work processes and automation.

The company also announced various product innovations and partnership programs during the quarter. With emphasis on multicloud, the company announced its HyperFlex platform as well as its Container Platform, which is expected to further expand its product portfolio. The company is also reportedly working on a hyperconnected car in collaboration with Hyundai, which will help it in penetrating the smart-vehicle solutions market.

Cisco also joined forces with Apple, Aon and Allianz to provider better cyber risk management solutions for business, the effect of which is likely to be seen in the quarter to be reported.

Security Segment: Key Catalyst

Cisco’s expanding footprint in the rapidly-growing security market bodes well. The company’s security solutions continue to add customers.

In the last quarter, Cisco reported double-digit order growth and 42% deferred revenue growth for the segment.

The Zacks Consensus Estimate for the Security segment revenues is currently pegged at $575 million.

Intense Competition Hurts Infrastructure Platforms

Infrastructure Platforms comprise switching, NGN routing, Wireless and Data Center. Notably, competition from several smaller players including Arista Networks is hurting top-line growth in the switching and routing businesses. Moreover, the ongoing transition to subscription-based model is a concern.

Nevertheless, we expect Cisco to deliver stellar performance in the Cloud services segment. The completion of Broadsoft’s acquisition during the quarter is accelerating Cisco’s cloud strategy portfolio, helping it to achieve a leadership position in the segment.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Cisco has a Zacks Rank #3 and an Earnings ESP of +0.59%, which indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks to Consider

Here are some stocks you may also want to consider as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Applied Materials (AMAT - Free Report) has an Earnings ESP of +0.57% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

SINA Corp. (SINA - Free Report) has an Earnings ESP of +7.60% and a Zacks Rank #3.

HubSpot (HUBS - Free Report) has an Earnings ESP of +1.32% and a Zacks Rank #3.

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