Shares of Cisco (CSCO - Free Report) have jumped roughly 23% in 2019 to match its industry’s average climb and crush the S&P 500’s 14% jump. The historic networking giant is riding pretty high on the back of solid Q2 fiscal 2019 results. But with its third-quarter financial release due out on Wednesday, May 15, it’s time to see what to expect from Cisco to help investors determine if they want to buy CSCO stock heading into earnings.
Cisco topped earnings and revenue estimates last quarter. The firm was able to impress Wall Street at a time when some thought the Trump administration’s 10% tariffs on Chinese-produced goods would hurt Cisco, which makes some of its routers and switches in the world’s second-largest economy and sells them in the U.S.
The company was able to raise prices to help offset the negative impact, which could become harder if the new trade war escalations prove true. But let’s not speculate on the future of a U.S./China trade deal just yet, especially since any 25% tariffs would not impact Cisco’s soon-to-be-reported results.
Along with its strong quarterly results, investors were also pleased to see that Cisco has continued to make progress on its plans to expand beyond its core hardware offerings. Today, the San Jose, California-headquartered firm sells everything from security offerings to solutions for cloud computing, data centers, the Internet of Things, and more. “Our teams are executing incredibly well, aggressively transitioning to a software model and accelerating our pace of innovation,” CEO Chuck Robbins said in prepared remarks last quarter.
“We are redefining and connecting every domain of the networking infrastructure to deliver the agility, operational efficiency and security our customers require to embrace multicloud, edge computing and digital transformation.”
Shares of CSCO closed regular trading hours Friday up 0.83% to $53.36 per share—down 7% off its 52-week intraday high of $57.53 per share. Jumping back a little further, we can see that Cisco stock has outpaced its industry’s average over the past five years and crushed its peer group’s 8.5% climb—which includes, NetGear (NTGR - Free Report) . On top of that, CSCO shares have topped Google’s (GOOGL - Free Report) 117% climb over this stretch and nearly matched Apple’s (AAPL - Free Report) 133% expansion.
Looking ahead, the company’s quarterly revenue is projected to jump 3.5% to reach $12.90 billion, based on our current Zacks Consensus Estimate.
More specifically, our NFM estimates call for the company’s product unit to reach $9.67 billion. This would mark a 3.8% jump from the year-ago period, but would fall below last quarter’s 6% product revenue growth. Meanwhile, Cisco’s services unit is projected to climb 2.4% to hit $3.24 billion, which would top last quarter’s flat growth.
On top of that, Cisco’s application unit revenue is projected to surge over 19% to $1.56 billion. Last quarter, its app business jumped 24%. Lastly, its security division is projected to expand by 12% to hit $653 million. Once again, this would mark a slowdown compared to Q2 2019’s 18% security unit growth.
At the bottom end of the income statement, Cisco’s adjusted quarterly earnings are projected to surge 16.7% to reach $0.77 per share and top last quarter’s roughly 16% bottom-line expansion. It is also worth pointing out that Cisco has seen no earnings estimate revision activity for Q3 over the last 60 days. This means analysts have stayed committed to their post-second quarter estimates, which could change as we get closer to Cisco’s report.
With that said, we can see that the company’s overall fiscal 2019 earnings estimate has trended upward in a major way, and its stock price has followed it accordingly.
Cisco is Zacks Rank #2 (Buy) right now, based, in large part, on its longer-term earnings estimate revision activity. The company also sports a “B” grade for Value and an “A” grade for Momentum in our Style Scores system.
CSCO stock is currently trading just below its industry’s average forward P/E at 17.8X forward 12-month Zacks Consensus EPS estimates. But this figure comes in above Cisco’s own three-year median of 15.4X and its 12.2X low. Plus, Cisco’s price/sales ratio sits at 5, well above its industry’s 1.5 average.
With all that said, playing stocks around earnings is not for the faint of heart, and some of Cisco’s specific business units could fall below last quarter’s growth rates. Still, CSCO stock looks solid overall right now. Plus, Cisco is a dividend payer, with an annualized payout of $1.40 a share, for a 2.65% yield at the moment.
Cisco is set to report its Q3 fiscal 2019 financial results after the market closes on Wednesday, May 15. Make sure to come back to Zacks for a full breakdown of its actual metrics.
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